Background - Elliott's fair share in Samsung
Elliott Associates, LP (Elliott) is a United States-based fund with investments in South Korea. Elliott was a shareholder in Samsung C&T Corporation (SC&T), part of the Samsung group, which became the subject of a merger with Cheil Industries Inc (Cheil). Elliott opposed the merger.
The National Pension Fund of Korea (NPF), a company managed by a public South Korean fund (NPS), is another shareholder in SC&T. NPF had supported the merger and in fact, without NPF’s vote, it would not have passed.
Elliott commenced arbitral proceedings against South Korea under the investment provision contained in the U.S. – Korea Free Trade Agreement (the BIT).
The dispute goes to arbitration
During proceedings, Elliott alleged that South Korea had improperly directed NPS to vote in favour of the merger. In doing so, the South Korean government had contravened central components of the BIT – the minimum standards of treatment and the national treatment standard.
The tribunal considered the scope of the BIT. Under Article 11, the BIT regulates “measures” related to investors and investments. It was South Korea’s main contention that the actions of the South Korean government could not have contravened the BIT because:
- There had been no relevant “measure”.
- South Korea had not “adopted or maintained” a measure.
- If there had been a measure, it did not “relate to” Elliott or its investment.
The tribunal addressed these points. It found:
- Any actions of the State could be considered “measures” under the BIT.
- While NPF’s vote could be considered mere commercial conduct, the act was essentially under the direction of the South Korean ministry. Furthermore, while NPS was not a de jure organ of the South Korean state, it was functionally and financially closely linked to, and effectively part of, it.
- A measure “related to” an investor or an investment if, at the time the measure in question was adopted, it was reasonably foreseeable that it could adversely affect an investor of the other party or a covered investment. In this case, the impact of the South Korean government’s intervention was reasonably foreseeable and the relevant government agencies were aware of Elliott’s opposition.
Upon establishing that it had jurisdiction, the tribunal turned to whether South Korea’s intervention had contravened the minimum standard of treatment clause at Article 11 of the BIT. The tribunal found it had, and consequently awarded Elliott over $49 million USD.
South Korea seeks to have the award set aside
- there is a valid arbitration agreement;
- there is a properly constituted tribunal; and
- the disputed matters relate to the arbitration agreement.
The contention - why did South Korea's argument warrant scrutiny?
Section 67 clearly instructs a court to consider the matter as it relates to the jurisdiction of the tribunal. This is not an opportunity for the resistant party to argue about the substance of the tribunal’s decision. However, whether a matter is one of jurisdiction or one regarding the substantial matter can be difficult to distinguish. For example, South Korea argued that Elliott was not really an investor. This was jurisdictional – the tribunal could not consider the matter unless it related to investment. However, it was also substantive. The tribunal’s core role was to decide whether the South Korean government had breached Chapter 11.
The court rejects South Korea's argument
Elliott v Republic of Korea was not the first case in which the Court had to draw a fine line with respect to section 30(c). In previous decisions,[3] the Court had assessed a range of arguments under the guise that they spoke to jurisdiction. Drawing on the Court’s responses to these arguments, the Court stated it could draw the principle that:
Where determination of the issue said to be jurisdictional would require the supervisory court to determine issues which are integral to the merits, that in itself may suggest that the issue is not jurisdictional in the s.30 sense, as this would involve a municipal court and potentially enforcement courts determining issues which are the natural domain of the arbitral tribunal.
Further, the Court identified a means in which one might distinguish between an argument that goes to jurisdiction and one that goes to the foundations of the dispute:
I am persuaded that if a particular issue is integrated to a significant extent into the merits of a dispute, that weighs to some extent against according it a jurisdictional characterisation.
On the three key points raised by South Korea, a discussion of each would go beyond a technical analysis of the terms of the BIT. For each, South Korea was not just looking to define the elements of the term, but to use an interpretation of the facts to argue that it had not breached the minimum standards of treatment. The Court reiterated the main issues in dispute to illustrate the point:
- “Adopted or maintained a measure” – explaining whether South Korea had “adopted or maintained” a “measure” would fall on the interpretation of NPS’ motive. The Court would potentially have to look at whether NPS had acted independently in its own commercial interest or under the direction of the Ministry.
- “Related to” – for the Court to assess whether any action “related to” Elliott’s investments, it would have to consider what the foreseeable harmful effects of the action was at the time it was executed and whether it intended to harm the investments.
The dispute goes on
This will not be the last the English courts will say on the dispute. At the end of the decision, the Court considered whether there was more to say on the matter. Although the Court had rejected South Korea’s argument, the Court nevertheless shared their view that it had a real prospect of success.
Furthermore, the question is one that needs answers. Whether a question on the substantive dispute can amount to one of jurisdiction will likely be of sufficient importance to the determination of challenges to investment treaty arbitration awards before the English Commercial Court. The Court consequently granted leave to South Korea to have the matter heard in the Court of Appeal.
Conclusion
That the Court immediately granted leave to South Korea indicates that this matter is far from resolved. A challenge to the substantive jurisdiction and one to the merits of the dispute might seem clear, but the presence of section 30(1)(c) makes it complicated. Determining whether a matter is in accordance with the arbitration agreement could be difficult in the absence of discussing any merits of the dispute. In any case, the Court of Appeal will shine further light on a distinction which might come down to the smallest of margins.
References
[1] Section 67.
[2] Republic of Korea v Elliott Associates, LP [2024] EWHC 2037 (Comm).
[3] PAO Tatneft v Ukraine [2018] EWHC 1797 (Comm); Korea v Dayyani [2019] EWHC 3580 (Comm); and Czech Republic v Diag Human SE and Mr Stava [2024] EWHC 503 (Comm).
