[Housing Talk] Don’t lose legal dispute even before it starts

Let's say you are a creditor and you are at risk of losing your money as your debtor fails to pay off the debt by the due date, and the debtor continues to procrastinate, or worse, cuts off communication with the creditor.

The creditor in this case would want to start a litigation to ensure the creditor gets the deposit back from the debtor, but the lengthy process of the litigation might make the final ruling have no significant impact if the debtor claims to have no money left to return to the creditor. To prevent such instances, the creditor may pursue a preliminary injunction against the debtor so the debtor cannot dispose of a specific property at his or her free will.

In the US judicial system, an attachment or preliminary injunction are commonly pursued as a pretrial strategy at the outset of a litigation in order to maintain the status quo of, and protect irreparable harm to, a party pending the outcome of the litigation. Their counterparts in the Korean judicial system are known as a provisional seizure and a provisional disposition, respectively.

Both of these measures are temporary; however, their uses and results can make a lasting impact to the dynamics of litigation. One must carefully consider the vantage points of pursuing such measures, not only from the face value of such measures – thereby protecting the assets or other values from potential threats while the litigation is pending – but also from the economics of pursuing such measures.

One may be winning a battle, but losing the war if one successfully pursues a provisional seizure or provisional disposition, but the person cannot proceed to merits of the actual claim due to excessive litigation costs and liquidity concerns that may arise from poor strategy in pursuing these measures.

Provisional seizures and provisional dispositions

Both of these measures are temporary court orders for the purpose of preserving compulsory execution on the merits. There are some differences between them in that a provisional seizure can only take the form of a restraining injunction, which prevents a counterparty from disposing of its assets in a monetary claim or a claim convertible into money, whereas a provisional disposition could be issued in various forms, whether as restraining or mandatory injunction, which either prevents the counterparty from doing something or compelling the counterparty to do something in a non-monetary claim.

Generally, the moving party must establish the grounds for the claim and the necessity of preservation. When deciding to grant a provisional seizure or provisional disposition, the court will analyze various factors including (a) a likelihood of success on the merits; (b) a likely threat of irreparable harm to the moving party; (c) whether the harm alleged by the moving party outweighs any harm to the non-moving party; and (d) difficulty for the moving party to exercise its rights when the existing situations are altered by the non-moving party.

Finances, timing and strategies

The court generally orders the moving party to give security in an amount the court deems appropriate before issuing a provisional seizure or provisional disposition, and this amount can be quite sizable. The security will be used to reimburse the non-moving party for any injury caused by the injunction, if the moving party does not succeed on the merits. The amount of security required varies depending on types of claims and properties subject to such measures. A provisional seizure tends to require more security than a provisional disposition. The amount of security is higher depending on the type of property subject to such measures, and it is generally higher for tangible personal properties and intangible personal properties, than real properties. So, a simple adjustment on litigation structure can theoretically spare a moving party considerable costs.

In addition, different tactics are often employed to boost the moving party’s leverage in the negotiation process. For example, one seeking to use a provisional seizure or provisional disposition as a leverage for possible negotiation may try to seize the properties causing the most significant damage or the most imminent risk, like contractual rights in a deal which is supposed to close in days. One may also try to seize multiple properties by dividing up the claims in hopes of interrupting with the counterparty’s business operations.

Furthermore, it is noteworthy that a provisional seizure and a provisional disposition seeking to preserve the counterparty’s assets can be issued ex-parte. It means that one can save significant time without being required to give notice to the counterparty and that the procedure can be much easier and faster if a rebuttal from the counterparty is not raised due to the nature of the ex-parte proceeding. An injunction may be issued in a couple of weeks in an ex-parte procedure with reasonable grounds for a claim.

Kwon Oh-jun

This is the second installment in a series of columns written by attorneys at Barun Law LLC to provide legal insights in the field of construction, real estate and housing in South Korea. The writer is a partner attorney at the firm. -- Ed.

For further inquiries, contact ohjun.kwon@barunlaw.com.