National Pension Service Files Sudden Compensation Lawsuit Against Lee Jae-yong and Samsung C&T... Damage Amount Up to 600 Billion Won

Chairman Lee Jae-yong Files Compensation Lawsuit Against Samsung C&T and Others
Urgent Lawsuit Filed About One Year Before Expiration of Claim Rights
National Pension Service's Estimated Damage Amount Up to 600 Billion Won

The National Pension Service (NPS) has filed a damages lawsuit against Lee Jae-yong, Chairman of Samsung Electronics, and others involved in the past Samsung C&T and Cheil Industries merger. This marks the first step toward recovering estimated damages of up to 675 billion KRW after nine years since the merger.

According to the legal community on the 25th, the NPS filed a lawsuit on the 13th at the Seoul Central District Court demanding compensation for damages caused by the Samsung C&T and Cheil Industries merger. Defendants include Chairman Lee, former Samsung Group Future Strategy Office Chief Choi Ji-sung, former Future Strategy Office Deputy Director Jang Chung-gi, former Samsung C&T Presidents Kim Shin, Lee Young-ho, and Choi Chi-hoon, the corporation Samsung C&T, as well as former Minister of Health and Welfare Moon Hyung-pyo and former NPS Fund Management Headquarters Director Hong Wan-sun, totaling seven Samsung affiliates and others. The lawsuit was filed with less than one year remaining before the statute of limitations (10 years) for the claim expires. Based on the shareholders' meeting that approved the merger (July 2015), the statute of limitations expires in July next year. Park Min-jung, Director of the NPS Finance Division at the Ministry of Health and Welfare, stated at a forum on the "Elliott-Mason ISDS Subrogation Claim" on the 20th that "the lawsuit preparation has been underway for quite some time."

"Lee Jae-yong also liable for compensation"…NPS draws the sword after 9 years

The controversy over the Samsung C&T and Cheil Industries merger dates back nine years. The merger ratio of Cheil Industries to Samsung C&T was 1 to 0.35, favoring Cheil Industries, where the owner's stake was higher, sparking controversy. The merger plan passed with the support of the NPS, which held the "casting vote" at the time. The NPS held an 11.21% stake in Samsung C&T then. Without the pension fund's approval, the merger would have been impossible. The merger plan, requiring a special resolution with at least two-thirds of the shareholders present voting in favor, passed with a 69.53% approval rate.

However, allegations surfaced that pressure was applied to secure the pension fund's approval during the merger process, resulting in former Minister Moon and former Director Hong each being sentenced to two years and six months in prison. U.S.-based asset management firms Elliott and Mason, claiming losses from the merger, filed international arbitration cases against the Korean government through the International Investment Dispute Settlement (ISDS). The Permanent Court of Arbitration (PCA) ruled in June last year that Elliott should be compensated approximately 130 billion KRW, and in April this year, Mason was ordered to be compensated about 80 billion KRW.

Since the NPS held a larger stake in Samsung C&T than these firms, and has not recovered any damages, there have been ongoing calls from political circles and civic groups to file lawsuits against those involved in the merger. In July, during a National Assembly inquiry, Minister of Health and Welfare Cho Kyu-hong stated, "We will file a damages lawsuit within this year," bringing the lawsuit issue to the forefront. However, the specific defendants were not disclosed, and whether Chairman Lee was included was a matter of interest. This complaint reveals that Chairman Lee is also a defendant in the lawsuit.

Key issue: Damage amount estimation…'Up to 675 billion KRW'

The lawsuit amount stated in the complaint is 510 million KRW, which is a formal figure. Once the actual damage amount is specifically calculated, the claim size is expected to increase to several hundred billion KRW. Various institutions have estimated the damage scale to be at least 100 billion KRW. The Economic Reform Research Institute estimated the NPS's damages at 113.8 billion to 165.8 billion KRW, and the People's Solidarity for Participatory Democracy estimated 520 billion to 675 billion KRW. The special prosecutor for the Park Geun-hye state corruption case estimated 138.8 billion KRW. An analysis applying the damage amount per share calculated by the PCA for Elliott and Mason to the NPS suggests damages of about 230 billion KRW.

For Samsung C&T, the merger controversy, which had been dormant for some time, has reignited with the damages lawsuit, placing the company in a difficult position. Recently, there have been claims that the government should seek subrogation claims against Samsung C&T for the compensation (totaling 210 billion KRW) it must pay to Elliott and Mason. The argument is that public funds should not be spent on matters unrelated to the public interest, so losses must be prevented. Meanwhile, the second trial of Chairman Lee, who was acquitted in the first trial on charges related to the merger and succession allegations, is expected to begin soon.