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Mason Capital L.P. and Mason Management LLC v. Republic of Korea, Case No. 2018-55 (PCA)

Why it matters

This award is a landmark in investor-state arbitration for its detailed analysis of state attribution of conduct by a public pension fund. It clarifies the standard for government interference in corporate governance and sets a precedent for claims involving sovereign wealth funds and pension funds. The tribunal's finding that the Korean government's pressure on the National Pension Service to vote in favor of a merger violated the minimum standard of treatment underscores the limits of state influence over independent investment decisions.

Summary

The case arose from a merger between Samsung C&T Corporation (SC&T) and Cheil Industries in 2015. Claimants, U.S. hedge funds Mason Capital L.P. and Mason Management LLC, held shares in SC&T and Samsung Electronics. They alleged that the Korean government, through the Ministry of Health and Welfare, pressured the National Pension Service (NPS), a major shareholder in SC&T, to vote in favor of the merger at an unfair exchange ratio, harming minority shareholders. The merger was approved, and Claimants suffered losses. They brought claims under the KORUS FTA, arguing that the government's actions violated the minimum standard of treatment (FET) and national treatment. The tribunal, seated at the PCA under UNCITRAL Rules, found that the government's interference with the NPS's independent decision-making constituted a breach of FET. It rejected claims of expropriation and national treatment. The tribunal awarded damages of USD 32 million, plus interest and costs, finding that the government's actions caused the loss. The award is significant for its analysis of state responsibility for acts of public entities and the limits of permissible government influence in corporate matters.

The detail

Parties: Mason Capital L.P. and Mason Management LLC v. Republic of Korea, Case No. 2018-55

Case number: italaw/cases/6854

Outcome: Respondent breached the FTA; ordered to pay Claimants USD 32,030,876.83 plus interest and costs.

Quantum: USD 32,030,876.83

Applicable law: Free Trade Agreement between the Republic of Korea and the United States of America (KORUS FTA); UNCITRAL Arbitration Rules (1976)

Issues in play: The case involved the minimum standard of treatment under the KORUS FTA, specifically whether government interference with a state pension fund's voting decision breached fair and equitable treatment. Also at issue was attribution of the pension fund's conduct to the state.

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