S. Korea files appeal against PCA ruling to compensate Elliott

Justice Minister Han Dong-hoon answers reporters’ questions after announcing the details of follow-up measures to determine the Elliott investor-state dispute settlement (ISDS) case at the annex of the Seoul Government Complex on July 18. [Photo by Yonhap]

South Korea has filed an appeal in a British court to overturn a ruling by an international tribunal ordering the country to compensate U.S.-based hedge fund Elliott Investment Management with some 130 billion won ($103 million), announced Justice Minister Han Dong-hoon on Tuesday.

The case involves a dispute from the controversial merger of two Samsung Group affiliates, Samsung C&T and Cheil Industries, in 2015. The merger was seen as an effort to consolidate the control of Samsung Group heir Lee Jae-yong over the family-controlled conglomerate.

The appeal comes a month after the Permanent Court of Arbitration (PCA) in the Netherlands ordered the Korean government to pay nearly $54 million plus interest in compensation to Elliott for an investor-state dispute settlement (ISDS) suit filed by the New York-based activist fund in 2018.

Justice Minister Han stated during a press conference that the ruling contradicts the Free Trade Agreement (FTA) signed between Korea and the United States.

The amount ordered by the PCA represents about 7 percent of Elliott’s original claim, as the fund sought $770 million in compensation from the Korean government. Elliott held a 7.12 percent stake in Samsung C&T at the time of the disputed merger and claimed losses resulting from alleged pressure by the former Park Geun-hye administration on the National Pension Service to support the deal.

The National Pension Service, which owned an 11.21 percent stake in Samsung C&T, was the largest shareholder and voted for the merger.

In addition to the compensation, the PCA also ordered Korea to reimburse Elliott about $28.9 million for its legal expenses, bringing the total amount to around $103 million.

Minister Han argued that the National Pension Service is not a de facto state institution, rejecting the PCA’s characterization, and therefore, the government cannot be held responsible for its exercise of voting rights. He cited a ruling by a Korean court in a compensation suit filed by minority shareholders of Samsung C&T, which stated that the National Pension Service made an independent decision when exercising its voting rights, despite the involvement of former Health Minister Moon Hyung-pyo and other high-ranking officials who were later imprisoned in connection with the merger.

The Ministry of Justice expressed concerns that if the PCA’s ruling stands, it could encourage further malicious ISDS suits by foreign investors. The ministry emphasized that it is uncommon for an international tribunal to hold a state responsible when public entities exercise their voting rights as shareholders.

“If the government does not rectify this ruling, there is a high possibility that unfair ISDS suits will continue to be filed. Moreover, the ruling may have a negative impact on other ongoing ISDS cases involving Korea,” the ministry said.

The ministry also revealed that it has submitted a separate request to the PCA to correct the ruling, saying that in calculating Elliott’s damages, the PCA said it should have deducted the settlement payments that Samsung made to Elliott after the merger as a “pre-tax amount,” but instead deducted an “after-tax amount” in the calculation, committing a clerical error. This error increased the amount of damages the South Korean government was ordered to pay by about 6 billion won, the ministry said.