For foreign companies and individuals contracting with a Korean business: which law governs, where disputes go, who can sign for a Korean company, how courts read the contract, and how to end it.
Quick answer: The parties to a cross-border contract can choose the law that governs it, expressly or by implication, and Korean courts must work out the governing law and the content of any foreign law themselves. A choice of a foreign court can be invalid if the case has no real connection to it. A deal signed by a Korean company’s representative without the board approval it needed is generally still valid, unless the other side knew or was grossly negligent. To end a contract for non-performance, you usually have to give a reasonable period to perform first.
Key points
- A contract is governed by the law the parties chose, expressly or by a choice that can reasonably be inferred (Act on Private International Law, Article 45(1)).
- Korean courts must identify the governing law, and the content of a foreign law as it is actually applied in that country, even if neither party raises it.
- An exclusive foreign jurisdiction clause can be invalid where the case has no reasonable connection with that court and Korean law governs.
- A deal signed without required board approval is valid unless the counterparty knew or was grossly negligent, and the company must prove that (Supreme Court en banc, 2015Da45451).
- Termination for delay normally needs a notice giving a reasonable time to perform, unless the other side has clearly refused (Civil Act, Article 544).
Which law governs a cross-border contract
Under Article 45(1) of the Act on Private International Law, a contract is governed by the law the parties chose. The choice can be express or implied, but an implied choice is recognised only where it can reasonably be inferred from the contract and all the surrounding circumstances (Supreme Court 2016Da222712; 2025Da212297).
Where a contract has a foreign element, the court is expected to decide the governing law under the Act even if neither party argues the point, and to give the parties the chance to address it (Supreme Court 2021Da269388; 2025Da212297). Consumer contracts are a partial exception: a consumer keeps the protection of the mandatory rules of the country where they habitually live, whatever law the contract chooses (Supreme Court 2017Da219232).
A foreign law is law, not a fact to be provedSupreme Court 2008Da88375; 2016Da222712Court’s own duty
Where a foreign law governs, the Korean court must investigate its content on its own initiative. It must apply it as it is actually interpreted and applied in that country. Only if its content cannot be established despite that investigation may the court fall back on general principles of reason.
In plain EnglishIf your contract chooses, for example, English or New York law, a Korean court will try to apply it as courts there would. Be ready to supply materials on how that law is applied, because what the court can find shapes the result.
Where disputes go: courts and arbitration
| Clause | What Korean courts have looked at |
|---|---|
| Exclusive jurisdiction of a foreign court | Whether the case has a reasonable connection with that court. A clause giving exclusive jurisdiction to a foreign court was held invalid where the case had no reasonable connection with it and Korean law governed (Supreme Court 2001Da53349) |
| Arbitration clause | It covers not only the contract itself but disputes directly or closely related to its formation, performance and validity. It can also be included by referring to another document that the parties made part of the contract (Supreme Court 99Da13577, 13584) |
Make the governing law, the forum and any arbitration rules consistent with each other and with where the counterparty’s assets are. A judgment or award is only as useful as your ability to enforce it.
Who can sign for a Korean company
Under Article 393(1) of the Commercial Act, decisions such as disposing of important assets or borrowing large sums are for the board of directors, and the board cannot simply delegate them to the representative director. Whether an asset is important depends on its value, its share of total assets, the company’s size and situation, its purpose and how the company has treated such matters before.
Deals signed without the required board approvalSupreme Court en banc, 18 February 2021, 2015Da45451; Commercial Act, Articles 389(3) and 209(2)Valid unless bad faith
A board resolution is part of the company’s internal decision-making. A counterparty is generally entitled to assume the representative director completed the company’s internal procedures, so a lack of board approval does not by itself make the deal void.
The deal is void only if the counterparty knew there was no board resolution, or did not know because of gross negligence. Ordinary negligence is not enough, and it is the company that must prove the counterparty’s knowledge or gross negligence.
What it means for youFor large or unusual transactions, ask for evidence of board approval anyway. If something about the deal is out of the ordinary and you did not ask, a court may find gross negligence.
| Situation | Effect |
|---|---|
| No board resolution, counterparty unaware | The deal is valid |
| Counterparty knew, or was grossly negligent | The deal is void as against the company |
| Representative acted for their own benefit within their authority | Valid, unless the counterparty knew or could have known of that purpose (Supreme Court 99Da54905) |
| Someone used a title such as president or vice president without authority | The company is liable to a counterparty in good faith (Commercial Act, Article 395) |
The rule on apparent representatives in Article 395 also applies where such a person signs using the name of another, real representative director. The question then is whether the counterparty reasonably believed that person had authority to act for the representative director (Supreme Court 2002Da40432; 99Da19797).
How a Korean court reads the contract
Where the parties put their agreement in writing and the wording is clear, the court gives effect to the wording. Where it is not clear, the court looks at the wording, why and how the contract was made, what the parties aimed to achieve, their real intention and trade practice (Supreme Court 2019Da226395). Where reading a clause against its plain wording would seriously change the parties’ legal position, the wording must be read even more strictly; this applies to agreed termination rights too (Supreme Court, 30 April 2026, 2025Da220052). But where both parties actually agreed something different from the written text, their shared intention prevails (Supreme Court, 29 January 2026, 2023Da200222).
Where there are English and Korean versions, say which one prevails. Inconsistent versions invite exactly the interpretation dispute these rules are designed to resolve.
Ending the contract
| Ground | What is required |
|---|---|
| Delay in performance | Give a reasonable period to perform; terminate if it is not met. No notice is needed if the other side has said in advance it will not perform (Civil Act, Article 544) |
| Clear refusal to perform | Termination or damages without notice, even before the due date. The refusal must be clear and final, judged from the conduct and all the circumstances (Supreme Court 2014Da1508; 2004Da22971) |
| Partial impossibility | The whole contract can be terminated only if the possible part alone cannot achieve the contract’s purpose (Supreme Court 2014Da1508) |
| Change of circumstances | An unforeseeable, significant change in the objective basis of the contract, not caused by the party relying on it, where holding the parties to the contract would be clearly contrary to good faith. Personal circumstances do not count (Supreme Court 2014Da1508) |
After termination: restitution and damages
- Each party must restore the other to its original position, and money returned carries interest from the day it was received (Civil Act, Article 548).
- Damages claimed with termination are measured by what the claimant would have gained from performance, the expectation interest (Article 551; Supreme Court 2017Da284236).
- An agreed damages amount can be reduced if it is unfairly excessive, judged on everything up to the close of the hearing (Supreme Court 2005Da71635).
- A settlement agreement creates a new legal relationship. It cannot be undone for a mistake about the very dispute it settled (Supreme Court 2017Da21411).
A checklist before you sign
- The governing law, chosen expressly
- The forum: court or arbitration, and enforcement in the country where the counterparty’s assets are
- Evidence of the signatory’s authority, and board approval for large or unusual deals
- Which language version prevails
- Clear termination rights and notice periods
- Agreed damages that are proportionate
Frequently asked questions
Our contract says nothing about governing law. What happens?
The court first looks for an implied choice from the contract and the circumstances. If there is none, it decides the governing law under the Act on Private International Law, and it must do so even if neither party raises it.
The Korean company says the deal is void because the board never approved it. Is it?
Generally not. Under the 2021 en banc judgment, the deal stands unless the company proves you knew there was no approval or were grossly negligent in not knowing.
The other side is late. Can we terminate straight away?
Usually you must first give a reasonable period to perform. You can terminate without that step if they have clearly and finally refused to perform.
This article is general information about Korean contract and company law and is not legal advice. Outcomes depend on the contract and the facts, and statutory provisions are subject to amendment.
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- the governing law, forum and enforcement position of your contract
- whether a signature binds the company, and what to ask for
- your options if the other side is late or refuses to perform
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