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Piercing Borders and Veils: Korea’s Supreme Court Applies Foreign Corporate Law to Parent Liability

2025.08.04

Introduction 
 
A recent decision by the Korean Supreme Court serves as a reminder to multinational companies that where they choose to incorporate matters.  In a cross-border dispute involving a Korean parent of a foreign subsidiary, Korea’s highest court chose to apply the law of the subsidiary’s place of incorporation to find parent liability.  This ruling has major implications for companies with subsidiaries in foreign jurisdictions that impose different standards for joint and several liability, particularly where corporate veil piercing is easier than in Korea.  This latest ruling by the Supreme Court underscores the need for Korean companies to carefully assess the corporate liability regimes of foreign nations before structuring overseas operations. 
 
 
1. Supreme Court Decision 2022Da288836, 2022Da288843 (consolidated) dated Apr. 3, 2025 
 
In this case, a group of five Chinese manufacturing companies sued the Korean parent company of a wholly owned Chinese subsidiary that had long supplied goods on credit.  When the subsidiary failed to pay outstanding invoices, the plaintiffs sued the parent in Korea, invoking Article 63 of the PRC Company Law.  Article 63 provides that if the sole shareholder of a one-person limited liability company cannot prove that the company’s assets are independent from the shareholder’s assets, the shareholder shall bear joint and several liability for the company’s debts.  The plaintiffs argued that the 100% shareholder of the subsidiary failed to prove such independence.  The defendant sought to dismiss the case on grounds that China had stronger ties to the dispute and is therefore a more appropriate forum.  
 
The Busan District Court and Busan High Court dismissed the complaint for lack of international jurisdiction, but the Korean Supreme Court reversed.  It held that Korean courts have jurisdiction over the case because the defendant’s principal place of business and the dispute was sufficiently connected to Korea.  The Supreme Court also held that Chinese law governed the dispute based on Article 16 of Korea’s former Private International Law Act which provides, “a corporation or any other organization shall be governed by the law of the jurisdiction where it was incorporated.”  The court further held that application of Chinese corporate law did not violate Korean public policy and found the defendant jointly and severally liable for the debt of its subsidiary.  
 
 
2. Key Takeaways  
 
The Supreme Court’s decision makes it clear that the threshold for deeming Korea a “manifestly inappropriate” forum is high.  The court rejected the defense that Korea was an inconvenient forum where the defendant was domiciled in Korea and the parties had substantial connections to Korea.  The case advises that Korean courts will not lightly decline jurisdiction where there is a meaningful nexus to Korea.   
 
Second, the Supreme Court reaffirmed the incorporation theory in determining the governing law.  Article 16 of Korea’s former Private International Law Act provides that matters relating to a legal entity, including shareholder liability, are governed by the law of the entity’s place of incorporation.  The Court extended this principle to veil-piercing claims, holding that whether and to what extent shareholders are liable to the company’s creditors must be determined under the law of the entity’s place of incorporation.  This means that express governing law clauses typically found in written contracts may not override the law of the incorporation.  
 
Third, the Supreme Court applied the public policy exception more narrowly than some might expect.  It disagreed with the defendant’s argument that automatic shareholder liability under PRC law was contrary to Korean public policy.  The court found that the defendant had voluntarily established and controlled the Chinese subsidiary and construed that as acceptance of the application of Chinese corporate law.  The court also ruled that limited liability is a statutory – not constitutional – principle in Korea, which does not rise to the level of public policy.  This decision serves as a reminder that Korean courts will rarely refuse to apply a foreign statute on public policy grounds on the basis that it offers less protection to shareholders than Korean law.  
 
 
3. Practical Implications for Cross-Border Contracts  
 
This ruling sends a cautionary signal to Korean companies engaged in cross-border transactions.  Korean courts may assert jurisdiction and enforce foreign corporate liability rules, even when those rules impose obligations that would not necessarily arise under Korean law.  For foreign companies, the decision may also present a strategic advantage – to be able to bring claims in Korean courts based on the corporate liability rules of their own jurisdiction, granted that the dispute has meaningful connection to Korea.  
 
Companies should be aware that: 
 
<ul>
	<li>Forum-selection clauses may not shield parties from Korean litigation.  A Korean nexus – such as defendant’s domicile, business activity, or asset base – can be enough for Korean courts to retain jurisdiction. </li>
	<li>Choice-of-law clauses may not protect parent companies from foreign veil-piercing doctrines.  Korean courts will apply the law of the subsidiary’s place of incorporation to shareholder liability issues.  Understanding the local veil-piercing standards when incorporating subsidiaries in foreign jurisdictions matters. </li>
	<li>The public policy exception only applies in exceptional circumstances.  Korean courts are unlikely to reject foreign shareholder-liability statutes unless they violate fundamental constitutional norms.  In practice, the bar is extremely high.  Parties should draft with the expectation that foreign liability regimes will be enforced in Korea.  </li>
</ul>

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