Can a Winning Shareholder Recover Attorney Fees in South Korea?
Attorney Fees in South Korea?
Table of Contents
- 1. What is a shareholder derivative suit under South Korean law?
- 2. Can a winning shareholder recover attorney fees from the company?
- 3. How do Korean courts determine the “reasonable amount”?
- 4. Can bar association fee schedules cap the recovery?
- 5. Are provisional attachment and injunction costs recoverable?
- 6. What counts as “winning,” and when does interest start to accrue?
- 7. What should foreign-invested companies in IFEZ know?
- 8. Frequently asked questions (FAQ)
Imagine spending more than four years suing a director on the company’s behalf, winning billions of won in damages — all of which go to the company — and then receiving the attorney fee invoice in your own name. Under South Korean law, must the shareholder bear that cost alone?
South Korea’s Commercial Act answers no. Article 405(1) allows a shareholder who wins a derivative suit to recover a reasonable amount of litigation costs, including attorney fees, from the company. How Korean courts apply that standard matters not only to domestic investors but also to foreign shareholders in Korean joint ventures: in a 2024 Seoul case, the winning plaintiff was a U.S. corporation holding 50% of a Korean company. Atlas Legal, a corporate law firm based in Incheon Songdo, South Korea, reviews the key court decisions below.
What is a shareholder derivative suit under South Korean law?
A shareholder derivative suit (daepyo sosong) is a lawsuit in which a shareholder sues a director on behalf of the company to enforce the director’s liability when the company itself fails to act, under Article 403 of the Korean Commercial Act.
Under Article 403, a shareholder holding 1% or more of the issued shares may first demand in writing that the company bring an action against the director. If the company does not file suit within 30 days of the demand, the shareholder may sue for the benefit of the company. Any damages awarded are paid to the company, not to the suing shareholder.
This structure creates an imbalance that Korean courts have repeatedly acknowledged: the benefit of a derivative suit goes to the company and the shareholders as a whole, while the individual shareholder who conducts the litigation directly bears the loss of time and money, gaining only an indirect benefit through the company. Korean lower courts explain that Article 405(1) addresses this imbalance — and supports the policy of encouraging derivative suits — by letting the shareholder claim compensation for litigation expenses from the company that received the benefit, so that, absent special circumstances, the shareholder should not be left with a loss (Seoul Central District Court 2021Na63541; Seoul Northern District Court 2023Gahap21461).
Can a winning shareholder recover attorney fees from the company?
Yes. Although Article 405(1) of the Korean Commercial Act does not expressly mention attorney fees, Korean lower courts have consistently held that attorney fees — typically the largest expense in a derivative suit — are included in the recoverable costs.
The reasoning is threefold: litigation costs generally include attorney fees; attorney fees account for the largest share of what a shareholder spends on a derivative suit; and excluding them would defeat the purpose of making the company bear suit-related costs (Seoul Central District Court 2021Na63541; Seoul Northern District Court 2023Gahap21461; Seoul Eastern District Court 2015Gahap108763).
Contingency fee obligations can also qualify. Korean courts have noted that contingency fees are normally paid only after the judgment amount is actually collected, that denying recovery of agreed fees would weaken the statute’s purpose, and that the risk of excessive fee agreements is controlled by the “reasonable amount” limitation (Seoul Eastern District Court 2015Gahap108763). One court accepted a contingency fee obligation the shareholder had incurred but not yet paid (Seoul Central District Court 2021Na63541).
A note of caution: another decision denied recovery on the ground that the shareholder had not actually paid the claimed success fee, distinguishing the broader wording of the former Securities and Exchange Act, which covered “all costs” of the suit (Seoul Central District Court 2017Gahap541880, affirmed by Seoul High Court 2018Na2003722). Because the lower courts are divided on unpaid fees, the structure and timing of the fee agreement deserve careful planning.
How do Korean courts determine the “reasonable amount”?
Korean courts start from the agreed fee and then ask, objectively, whether it is reasonable compensation for the attorney’s work, considering the amount claimed, the difficulty of the case, the complexity of the proceedings, pre-suit measures, and the benefit the company obtained.
The factors recur across the decisions: the agreed fee, the amount in dispute and the number of parties, the difficulty of the issues, the complexity of the proceedings (number of hearings, briefs, evidence-taking, duration), measures taken before filing, and the benefit the company gained from the suit (Seoul High Court 2016Na2063706; Seoul Central District Court 2021Na63541; Seoul Northern District Court 2023Gahap21461). Necessarily incurred items such as court stamp fees and service fees are treated as reasonable in full (Seoul High Court 2016Na2063706). The table below summarizes how the awards came out in practice.
| Decision | Fees claimed | Amount awarded | How the court calculated it |
|---|---|---|---|
| Seoul Central District Court 2021Na63541 | KRW 190,320,806 (first-instance fees) | KRW 142,128,322 | Full retainer of KRW 10,000,000 plus a contingency fee of 2% of the KRW 6,606,416,128 first-instance award |
| Seoul High Court 2016Na2063706 | KRW 110,875,785 | KRW 82,833,834 | 3% of the KRW 2,510,116,219 the company actually collected, plus VAT |
| Seoul Northern District Court 2023Gahap21461 | KRW 456,320,774 | KRW 50,000,000 | About one half of KRW 94,622,004 after deducting fees for the losing portion and for translation and travel |
| Seoul Eastern District Court 2015Gahap108763 | KRW 648,842,486 (agreed 4%) | KRW 216,280,829 | 2% of the final judgment amount, of which the plaintiffs’ two-thirds share was awarded |
The 2023 Seoul Northern District Court case shows how an hourly fee structure (USD 400 per hour) can be cut back: because hourly fees were paid regardless of outcome, the court deducted the portion attributable to the losing part of the claim, then deducted translation and travel fees, and finally awarded only about half of the remainder, also noting that the shareholder had directly received half of the judgment proceeds through a post-judgment settlement (2023Gahap21461).
Can bar association fee schedules cap the recovery?
Not as a ceiling. In one notable case, the Seoul Eastern District Court reduced an agreed contingency fee from 4% to 2% — yet that 2% was double the 1% benchmark of the Seoul Bar Association’s repealed fee schedule, which the court expressly considered.
In that case, shareholders had sued the directors and auditors of a Korean company over the deliberate waiver of rights to subscribe to convertible bonds issued in 1996. Their counsel took the case without any retainer or expense advance, on a contingency of 3% (if final at first instance), 4% (second instance), or 5% (third instance) of the final judgment amount. The suit ended in a partial win at the appellate level, and the company collected a total of KRW 16,221,062,174 in judgment principal and interest from the losing directors.
When the shareholders claimed the agreed 4%, the court weighed the importance of the case against the modest number of hearings relative to its duration, the fact that a related criminal case had already clarified much of the record, and the (already repealed) Seoul Bar Association rule on attorney fee standards, which had set 1% of the economic benefit exceeding KRW 500 million per instance as the contingency benchmark. The court fixed 2% of the judgment proceeds — KRW 324,421,243 — as the reasonable amount, ordering payment of the plaintiffs’ two-thirds share, KRW 216,280,829, on the ground that co-plaintiffs’ fee obligations are divided obligations under Article 408 of the Korean Civil Act (Seoul Eastern District Court 2015Gahap108763).
The takeaway for South Korea practice: fee schedules and benchmarks are factors the court may consider, not caps. Separately, the Article 405(1) claim is independent of the cost-taxation procedure under the Korean Civil Procedure Act, so the shareholder need not go through that procedure first (Seoul Central District Court 2021Na63541).
Are provisional attachment and injunction costs recoverable?
Yes, where the ancillary proceeding was necessary for the derivative suit. Korean courts have allowed the costs of a provisional attachment (gaapryu) of the director’s assets and the attorney fees for a books-and-records inspection injunction.
The Seoul Northern District Court treated stamp fees, service fees, and an appraisal fee totaling KRW 18,190,890 as “litigation costs,” and the KRW 2,597,320 filing costs of a real estate provisional attachment securing the company’s damages claim as “other expenses incurred due to the suit.” It also included the attorney fees for the inspection injunction — used to confirm the director’s misconduct before filing — and for the attachment (2023Gahap21461).
The same decision drew the line at proceedings unrelated to the derivative suit: fees for a pre-suit arbitration consultation between the shareholders under a joint venture agreement, and fees for an inspector-appointment petition that was withdrawn without benefiting the company, were excluded. Relevance to the derivative suit and benefit to the company are the touchstones.
What counts as “winning,” and when does interest start to accrue?
A dismissed claim is not a win, even if the retainer agreement deems it one; and once a proper demand is made, the company owes statutory interest at the civil rate of 5% per year from the demand.
In one case, the derivative suit was dismissed because the director’s in-kind repayment extinguished the company’s loss, but the shareholder argued that the retainer agreement’s “deemed win” clause satisfied Article 405(1). The Seoul Central District Court disagreed: a private retainer agreement binding only its parties cannot serve as the standard for interpreting the statute, so a dismissed claim does not meet the “winning” requirement (2017Gahap541880, affirmed by Seoul High Court 2018Na2003722). Partial wins, by contrast, have supported recovery (Seoul Central District Court 2021Na63541).
As for interest, the company’s payment obligation under Article 405 has no fixed due date, so default interest runs from the shareholder’s demand under Article 387(2) of the Korean Civil Act — at the civil statutory rate of 5% per year, not the 6% commercial rate, because the obligation does not arise from a commercial transaction (Seoul Eastern District Court 2015Gahap108763).
What should foreign-invested companies in IFEZ know?
Foreign shareholders in Korean joint ventures can and do use Article 405 of the Korean Commercial Act — but fee structures designed for cross-border convenience may be cut back by Korean courts.
In the 2024 Seoul Northern District Court case, the winning plaintiff was a U.S. corporation holding 50% of a Korean joint venture company. The court confirmed the foreign shareholder’s right to recover costs, but deducted the attorney fees for Korean-to-English translation and for Korea-U.S. travel as expenses incurred solely for the shareholder’s own convenience, since the case was litigated in a Korean court by Korean-qualified counsel (2023Gahap21461). Hourly billing was also discounted for the losing portion of the claim.
For foreign-invested companies and joint ventures across the Incheon Free Economic Zone (IFEZ) — Songdo International Business District, Cheongna International City, and Yeongjong International City — the practical lessons are to structure fee agreements with the “reasonable amount” review in mind, to document each expense item against the derivative suit it supports, and to keep ancillary proceedings clearly tied to the main claim. Atlas Legal advises foreign shareholders and joint venture parties in South Korea on these disputes in English.
Frequently asked questions (FAQ)
Q. Can a shareholder recover attorney fees after winning a derivative suit in South Korea?
A. Yes. Korean lower courts have consistently held that attorney fees fall within the litigation costs and other expenses recoverable from the company under Article 405(1) of the Korean Commercial Act (Seoul Central District Court 2021Na63541 and others). The recovery is limited to a reasonable amount determined by the court, not necessarily the full amount spent.
Q. Are contingency fees that have not yet been paid recoverable in South Korea?
A. Korean lower courts are divided. Some decisions allowed recovery of contingency fee obligations the shareholder has incurred but not yet paid (Seoul Eastern District Court 2015Gahap108763; Seoul Central District Court 2021Na63541), while another decision denied recovery of expenses not actually paid (Seoul Central District Court 2017Gahap541880). Case-by-case review is needed.
Q. What happens if the shareholder wins only part of the derivative suit?
A. Partial victories have supported recovery in South Korea (Seoul Central District Court 2021Na63541; Seoul Northern District Court 2023Gahap21461). However, the portion of attorney fees attributable to the losing part of the claim can be deducted when the court fixes the reasonable amount.
Q. Does the company bear the final cost of the payment to the shareholder?
A. Not ultimately. Under the second sentence of Article 405(1) of the Korean Commercial Act, a company that pays litigation costs to the shareholder has a right of indemnity against the director or auditor whose liability was established, so the wrongdoer bears the cost in the end.
Q. Are provisional attachment and audit-inspection costs included?
A. They can be. The Seoul Northern District Court recognized the filing costs of a real estate provisional attachment and the attorney fees for a books-and-records inspection injunction and the attachment as recoverable, because they were necessary for the derivative suit (2023Gahap21461). Fees for a pre-suit arbitration consultation and a withdrawn inspector petition were excluded.
Q. Is a separate court cost-taxation procedure required before claiming under Article 405?
A. No. The claim under Article 405(1) of the Korean Commercial Act is a separate system from the cost-taxation procedure under the Korean Civil Procedure Act, so the shareholder may claim directly against the company regardless of whether that procedure was used (Seoul Central District Court 2021Na63541).
Q. Can a foreign shareholder recover translation and international travel costs of its lawyer?
A. In one South Korean case, no. The Seoul Northern District Court held that a U.S. corporate shareholder’s attorney fees for Korean-to-English translation and Korea-U.S. travel were incurred solely for the shareholder’s own convenience and deducted them when fixing the reasonable amount (2023Gahap21461).
This article is provided for general informational purposes only and does not constitute legal advice on any specific matter. For inquiries about shareholder derivative suits and litigation cost recovery in South Korea, you may contact Atlas Legal at +82-32-864-8300 or info@atlaw.kr.
