A Total of 410 Billion Won to Lone Star and Elliott... Ministry of Justice Likely to Pursue Appeal Procedures

Our government is expected to incur massive tax expenditures following consecutive losses in international investment disputes (ISDS). As calls for accountability emerge from political circles and the business community, attention is focused on how the government will respond.

Elliott, a shareholder of Samsung C&T, filed an ISDS claim worth $770 million (approximately 1.0378 trillion KRW) against our government in July 2018, alleging that the Ministry of Health and Welfare and the National Pension Service exerted pressure to vote in favor during the approval process of the merger between Samsung C&T and Cheil Industries in 2015, causing them losses.

The International Centre for Settlement of Investment Disputes (ICSID) arbitration tribunal under the World Bank partially upheld Elliott's claims on the 20th and ordered our government to pay Elliott $53.58 million (approximately 69 billion KRW) plus delayed interest as compensation. Our government and Elliott must also reimburse each other for the costs incurred in this lawsuit. We must pay Elliott $28.9 million (approximately 37.2 billion KRW) and receive $3.45 million (approximately 4.4 billion KRW). Including all these amounts, the actual payment our government must make to Elliott reaches 130 billion KRW.

Although the compensation amount is only about 7% of the 1 trillion KRW Elliott initially demanded when filing the lawsuit, the total payable amount has increased due to substantial delayed interest. This marks a consecutive defeat following last August’s ISDS ruling ordering our government to pay $216.5 million (approximately 292.5 billion KRW) to the foreign private equity fund Lone Star. Including Lone Star and Elliott, the total amount our government must pay as a result of ISDS rulings reaches 410 billion KRW.

The Ministry of Justice is expected to announce a response plan as early as the 21st. Legal circles anticipate that the government will pursue appeal procedures such as filing a motion to annul the ICSID award. The deadline to file a motion to annul the award in the Lone Star case is also approaching next month, requiring a prompt decision.

On November 25, 2010, Seung-yu Kim, Chairman of Hana Financial Group, and John Grayken, Chairman of Lone Star, are shaking hands after signing the Share Purchase Agreement (SPA) for Korea Exchange Bank at the Grosvenor Hotel in central London, UK.
[Image source=Yonhap News]

Minister of Justice Han Dong-hoon is giving a briefing on the ruling of the Lone Star international investment dispute (ISDS) case at the Ministry of Justice building in Gwacheon-si, Gyeonggi Province. Photo by Kim Hyun-min kimhyun81@

Meanwhile, five ISDS cases filed against South Korea remain unresolved, drawing even greater attention to the Ministry of Justice’s forthcoming decision. Depending on the outcomes of these remaining five cases, the scale of compensation could increase further. Therefore, there are voices advocating for an active appeal strategy to minimize the compensation amount as much as possible.

However, there are also concerns that the likelihood of a motion to annul being accepted is significantly low, warranting caution. Oh Hyun-seok, a professor in the Department of Economics and Trade at Keimyung University, analyzed in a paper published last year that "As of 2020, ICSID has annulled entire arbitration awards in only six cases and partially annulled 13 cases, totaling just 19 cases. Out of 165 motions to annul arbitration awards, only 19 were fully or partially annulled, resulting in a success rate of merely 11.5%."

Among the remaining five cases, the ISDS claim worth $200 million filed by the U.S.-based hedge fund Mason Capital Management around July 2018, alleging losses during the Samsung C&T and Cheil Industries merger process similar to Elliott’s case, may be resolved first. The $19 million ISDS claim filed in October of the same year by Swiss-based elevator company Schindler Holding AG, alleging government responsibility for losses incurred during Hyundai Elevator’s paid-in capital increase, is also expected to conclude soon.

ISDS claims filed by individual investors are also awaiting tribunal decisions. In July 2020, a Chinese investor filed an ISDS claim worth $15 million after losing collateral when failing to repay loans worth several hundred billion KRW domestically, alleging "lack of protection by the Korean government." In May of the following year, another foreign investor filed an ISDS claim worth $5.37 million, citing property damage caused by land expropriation due to a redevelopment project in Busan. In October of the same year, the Iranian Dayani family filed a second ISDS claim against the government, criticizing delays in compensation payments. Previously, the Dayani family had filed an ISDS claim worth 93.5 billion KRW against the government after the contract deposit was confiscated by creditors during the acquisition of Daewoo Electronics in 2015. The arbitration tribunal ruled that our government must pay the Dayani side approximately 73 billion KRW of the claimed amount, but the government faced difficulties in making compensation payments due to sanctions against Iran and restrictions on financial transactions.

This content was produced with the assistance of AI translation services.