The Korea Times | 21 June 2023
By Anna J. Park
Korea still faces 5 investor-state dispute cases pending at tribunals
A five-year legal battle between the Korean government and activist fund Elliott Investment Management over a controversial merger of two Samsung Group affiliates has finally reached a conclusion following a ruling by an international tribunal. But the Korean government faces five other similar disputes at international courts.
On Tuesday, the Permanent Court of Arbitration (PCA) ordered the Korean government to pay about $53.59 million plus interest in compensation to the U.S.-headquartered hedge fund.
The Ministry of Justice explained that the amount the government must pay is about 7 percent of the $770 million that Elliott originally sought as damage compensation. The tribunal’s decision requires the Korean government to pay 5 percent interest on the compensation as well. As a result, the Korean government needs to pay approximately $108.5 million in total to Elliott.
Although the ruling ended the investor-state dispute case that started in 2018, five more similar dispute settlement cases are pending at international tribunals.
According to ISDS Navigator operated by the United Nations Conference on Trade and Development (UNCTAD), Wednesday, 10 ISDS (investor-state dispute settlement) cases were filed against the Korean government and five of them are currently pending. Five others either reached a ruling already, including the high-profile Lone Star case, or have been discontinued.
Out of the remaining five pending ISDS cases, the oldest case is one filed by U.S.-based hedge funds Mason Capital and Mason Management back in September 2018. Like the case of Elliott, which claimed it had suffered damage from the merger of Samsung C&T and Cheil Industries because of Korea’s state pension fund’s support for the deal, Mason argued that their minority shareholders’ rights on Samsung C&T and Samsung Electronics’ stocks was infringed upon by the Korean government’s unfair intervention in the merger process.
Alleging that senior government officials acted in favor of a large shareholder of Checil Industries, resulting in losses to the claimants’ stakes, the plaintiffs are claiming $200 million in damage. The case is currently pending at the PCA.
Another pending case was filed by Switzerland-based elevator company Schindler Holding against the Korean government in October 2018. The Swiss elevator company claimed that the Korean government failed to exercise financial oversight related to Hyundai Elevator’s share capital increases and the use of the company’s funds from 2013 to 2015.
Schindler claimed that such capital increases were done to strengthen the Hyundai owner family’s management control, rather than for the sake of facilitating the elevator company’s business. Schindler added that the government’s lack of proper oversight allegedly caused significant impairments to their rights in Hyundai Elevator as the second-largest shareholder. The Swiss company is demanding $190 million in damage compensation.
Iran’s Dayyani family also filed lawsuits against the Korean government in 2015 and 2021. The previous case ended in favor of the Iranian family, as the PCA ordered the Korean government in 2018 to pay $53.2 million. The second case is about the delay of the Korean government’s supposed payment of the damage compensation. The government has faced difficulty in paying the damage compensation due to global sanctions against Iran.
Besides the three cases, two more cases filed by individual investors against Korea are pending at the international tribunal. A Chinese national known only by his surname Min filed the ISDS case in 2020, arguing that the Korean government failed to protect investors’ rights in the forced sale of the claimant’s real estate holdings by a local bank.
A U.S. national surnamed Won also filed a case in 2021 over the ownership of a residential building in Busan, arguing that the government’s redevelopment plan scrapped of the claimant’s ownership.
It is expected that such ISDS cases against the Korean government will increase in the future, as the government has so far received eight letters of intent, demanding the establishment of an arbitration case. Claimants can file for arbitration cases 90 days after sending the letter. Out of the eight, only one case was settled and the rest could be filed at international arbitration tribunals.