Korea appeals to nullify ruling to compensate Elliott over Samsung merger

Justice Minister Han Dong-hoon speaks during a press conference in the Government Complex Seoul on Tuesday. (Yonhap)

South Korea's Justice Ministry said Tuesday it has filed an lawsuit in England to block a June ruling in an international arbitration court that ordered Seoul to pay $107.8 million in damages and legal costs to US hedge fund giant Elliott Investment Management.

The Justice Ministry claimed that the National Pension Service, a public pension scheme that was at odds with Elliott over the controversial merger in 2015 of two key Samsung Group affiliates -- Samsung C&T and Cheil Industries -- cannot be deemed a "state organ" and instead should be seen as one making independent investment decisions.

Therefore, the conflict between NPS and Elliott should not be construed as a dispute between an investor and a state it said.

The government added that the criminal conviction of officials, including ex-NPS chief Moon Hyung-pyo, over illegal procedures in exercising voting rights such as extortions should be seen as NPS acting beyond its entrusted power, and therefore should not be seen as the state's exercise of sovereign powers, citing the free trade agreement between Korea and the United States.

Moreover, it said that an exercise of voting rights by the NPS could not be interpreted as a measure taken against Elliott.

This is the latest development in the investor-state dispute between Elliott and Korea, which dates back to a 2015 merger of Samsung C&T and Cheil Industries.

Elliott, one of the shareholders of Samsung C&T along with NPS and other Samsung affiliates, opposed the merger plan saying that it undervalued Samsung C&T shares. The merger was considered by outsiders as a prerequisite for the Samsung owner family's scion Lee Jae-yong to inherit the group.

Elliott's efforts were not enough to halt the merger plan, as other shareholders including NPS urged other investors to vote in favor of the merger. The merger was approved by both companies in June 2015.

This event later boded ill for the then Park Geun-hye administration, as the government officials were convicted of coercing NPS to vote in favor of the merger. The then de facto Samsung chief Lee was also convicted in a Supreme Court ruling in 2019, as the court saw the NPS decision as having come in exchange for bribes, including horses for the daughter of Park's close confidante.

Lee, three years later, rose to Executive Chairman of Samsung Electronics in 2022.

The Justice Ministry said it filed the appeal with the High Court of Justice Business and Property Courts of England and Wales, which deals with international arbitration issues, in order to fight the verdict in June by the tribunal at the Permanent Court of Arbitration in The Hague.

By Son Ji-hyoung(consnow@heraldcorp.com)