Elliott Associates L.P. v. Republic of Korea
PCA · Investment (ICSID and treaty) · Republic of Korea · 20 Jun 2023
Why it matters
This award is a landmark in investor-state arbitration for its detailed analysis of state responsibility for the conduct of state-owned entities, particularly pension funds. It clarifies the standard for attribution under international law and the scope of fair and equitable treatment in the context of corporate governance. The case also highlights the tension between a state's regulatory powers and its obligations under investment treaties, setting a precedent for future claims involving sovereign wealth funds and public pension funds.
Summary
Elliott Associates, a U.S. hedge fund, invested in Samsung C&T Corporation (SC&T) and Cheil Industries. In 2015, a merger between SC&T and Cheil was proposed. Elliott opposed the merger, arguing the exchange ratio was unfair. The National Pension Service (NPS), a Korean public pension fund and major SC&T shareholder, voted in favor of the merger, which was approved. Elliott claimed that the Korean government pressured the NPS to vote in favor, violating the minimum standard of treatment under the KORUS FTA. The Tribunal found that the NPS's vote was attributable to the state because the Ministry of Health and Welfare exercised control over the NPS's decision. It held that Korea breached the fair and equitable treatment standard by using the NPS to further non-commercial, policy objectives. The Tribunal awarded Elliott damages for the loss in value of its shares due to the merger. The case is significant for its application of the ILC Articles on State Responsibility to a pension fund and its detailed causation analysis.
The detail
Parties: Elliott Associates L.P. v. Republic of Korea
Case number: PCA Case No. 2018-51
Outcome: The Tribunal found that the Republic of Korea breached the Free Trade Agreement with the United States, and ordered it to pay Elliott Associates USD 53,586,931.00 in compensation, plus pre-award and post-award interest at 5% compounded yearly, and legal costs of USD 28,903,188.90.
Quantum: USD 53,586,931.00
Applicable law: Free Trade Agreement between the Republic of Korea and the United States of America (KORUS FTA); UNCITRAL Arbitration Rules 2013
Issues in play: The case involved the minimum standard of treatment under the KORUS FTA, specifically whether the Korean government's influence over the National Pension Service's vote in favor of a merger between Samsung C&T and Cheil Industries violated fair and equitable treatment. Also at issue was the attribution of conduct of the NPS to the state.
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