Arbitral Tribunal Orders South Korean Government to Pay 43.8 Billion Won
"Violation of Fair Treatment Obligation under Korea-US FTA"
The background behind the government's partial loss and compensation in the international investment dispute (ISDS) filed by a US hedge fund over the so-called 'Samsung merger' was the judgment that the intervention by the Blue House and others in the exercise of voting rights by the public institution National Pension Service was a 'state measure' and that the state should be held responsible for it.
On the 12th, the Ministry of Justice issued a press release disclosing the main points of the arbitration ruling from the previous day that contained this content.
The arbitral tribunal of the Permanent Court of Arbitration (PCA) partially accepted Mason Capital's claims and ruled that the Korean government must pay approximately 43.8 billion KRW in compensation.
The key issue was whether the government improperly interfered in the decision-making of the National Pension Service, an institutional investor, during the approval process of the 2015 merger between Samsung C&T and Cheil Industries, and whether this constituted state responsibility. This merger had been regarded as a major issue linked to the succession of management rights within the Samsung Group.
The arbitral tribunal judged that the actions of the Blue House and officials from the Ministry of Health and Welfare intervening in the National Pension Service's decision-making during the merger approval process constituted a 'measure adopted or maintained by a state' under the Korea-US Free Trade Agreement (FTA), thus attributing responsibility to the Korean government.
Our government argued that the exercise of voting rights by the National Pension Service was purely a commercial act as a shareholder and difficult to recognize as a state measure, and that the National Pension Service Investment Committee independently deliberated and voted considering mid- to long-term profitability, so it was not subject to arbitration. However, this argument was not accepted.
The principal compensation amount, excluding delay interest, is 32 million USD (approximately 43.8 billion KRW), which corresponds to about 16% of the amount claimed by Mason.
The government stated, "To prevent unnecessary expenditure of taxpayers' money, we will carefully analyze the ruling with government-appointed law firms and experts and respond accordingly." The government can file a lawsuit to annul the arbitration award at the Singapore court, the legal arbitration venue of this case, within three months from the date of receipt of the award.
Earlier, Mason filed for arbitration in 2019, claiming that the Korean government exerted undue pressure on the National Pension Service's exercise of voting rights to support the Samsung C&T-Cheil Industries merger, resulting in a decline in the stock prices of Samsung C&T and Samsung Electronics and causing damages of about 200 million USD.
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