The government won a lawsuit to set aside an investor-state dispute settlement (ISDS) arbitral award brought by U.S. hedge fund "Elliott." A U.K. court set aside the award, finding there was a significant error of law in the tribunal's jurisdictional ruling.
Minister Jung Sung-ho of the Ministry of Justice held a press conference on the 23rd and said, "The government won the lawsuit to set aside the ISDS arbitral award that was heard at a U.K. court at 7:30 p.m. today," and stated accordingly.
The Minister said, "The government's obligation to pay approximately 160 billion won in total, including principal and interest, recognized in the award has been provisionally extinguished and will be reconsidered."
The case arose from an ISDS that Elliott filed based on the Korea-U.S. Free Trade Agreement (FTA) in connection with the 2015 merger between Samsung C&T and Cheil Industries. Elliott, then a shareholder of Samsung C&T, opposed the merger and has raised issues on the grounds that the merger ratio was unfavorable to Samsung C&T, yet the National Pension Service (NPS), a major shareholder, voted in favor, causing losses to Samsung C&T shareholders.
Elliott has argued that the Korean government improperly influenced the National Pension Service (NPS)'s vote in favor of the merger, causing damages. The Minister said, "This is a lawsuit pursued in response to Elliott's ISDS claim over the past eight years seeking about 1 trillion won in damages against the Korean government."
In 2023, the arbitral tribunal of the Permanent Court of Arbitration (PCA) ordered the government to pay a principal of about $48.5 million plus interest, totaling about 160 billion won. With this set-aside action filed by the government in opposition, the ISDS award can no longer remain in effect as is, and the case has been remanded to arbitration.
The government sought set-aside in the U.K. court, the seat of arbitration, arguing that under the Korea-U.S. FTA provisions the PCA had ruled on a case over which it lacked jurisdiction.
The U.K. court held that "state measure" and "relating to an investment" requirements under the Korea-U.S. FTA must be treated as jurisdictional prerequisites. The court found that the tribunal's determination, which did not sufficiently examine those requirements, could be regarded as exceeding substantive jurisdiction under the Arbitration Act.
The Minister said, "From the written and oral submissions in the original arbitration, the government consistently argued that the National Pension Service (NPS) is not a state organ under international law, and that position was ultimately accepted in the U.K. set-aside proceedings."
In the first trial, in Aug. 2024, the court dismissed the case, finding that the Korea-U.S. FTA provisions cited by the government did not fall within the scope of adjudicative power under the U.K. Arbitration Act. In contrast, the Court of Appeal accepted the Korean government's appeal in July last year and remanded the case to the High Court, the first-instance court.
The High Court, which received the case back, examined whether there were grounds to set aside the PCA award and on this day ruled in favor of the Korean government. The Minister said, "The government experienced a dismissal, but overturned it on appeal and prepared thoroughly through the remand proceedings to win this year."
In ISDS, jurisdiction is the threshold that determines whether the tribunal is qualified to hear a case; if the treaty's requirements are not met, the tribunal cannot proceed to the merits.
The Minister called the ruling "a valuable decision that protected the National Pension, the retirement funds of the people," and said, "We pierced the 3% eye of the needle for set-aside success while spending only one-sixth of Elliott's litigation expense."
The Minister noted, "The government will do its utmost in the remanded arbitration proceedings going forward, while also pursuing legislation to improve the ISDS response system, to thoroughly protect the people and the national interest." Whether Elliott will further challenge the ruling and whether the judgment becomes final remain variables.
Earlier, the government won a set-aside lawsuit last month over the ISDS related to U.S. private equity firm Lone Star and the sale of Korea Exchange Bank, extinguishing in full the liability to pay approximately 400 billion won in principal and interest that was initially imposed.