Seoul High Court overturns first-instance ruling, upholding validity of indirect compulsory payment
Follow-up ICC arbitration in mid-year seen as watershed
Tougher measures may follow, potentially influencing Supreme Court decision
The put option dispute between Shin Changjae, Chairman of Kyobo Life Insurance, and the private equity fund (PEF) managers has entered a new phase. A domestic court ruling that had invalidated the indirect compulsory payment of 200,000 dollars per day (about 290 million won) imposed on Shin by an arbitral decision of the International Chamber of Commerce (ICC) was overturned on appeal, making the payment valid. Although the stage for actually enforcing the indirect compulsory payment has not yet been reached, there is growing assessment that Shin’s room for maneuver has narrowed in the subsequent arbitration and Supreme Court review processes.
Second-instance ruling overturned... 'Indirect compulsory payment' recognized
According to the investment banking (IB) industry on the 27th, in the put option dispute between IMM Private Equity (PE) and EQT on one side and Chairman Shin on the other, the Seoul High Court on the 24th additionally accepted the arguments of the private equity funds. This overturned the first-instance ruling that the ICC lacked authority to order an indirect compulsory payment.
The arbitration order issued by the ICC arbitral tribunal to Shin’s side in December 2024 consists of three main points: (1) Chairman Shin must appoint an appraiser within 30 days in accordance with the shareholders’ agreement; (2) after the appointment, he must take all necessary measures to ensure that the put option valuation report is submitted within 30 days; and (3) if he fails to appoint an appraiser, he must pay IMM Private Equity (PE) and EQT an indirect compulsory payment of 200,000 dollars per day on a cumulative basis.
The first-instance court did not recognize the validity of the indirect compulsory payment among these items, but the appellate court reversed this and held that the indirect compulsory payment is valid. In effect, it broadly recognized the ICC arbitral tribunal’s authority to impose coercive measures. Shin’s side argued that it had already appointed a valuation firm and, since that firm resigned on its own, the first order had been fulfilled. After the initial arbitral award was issued, Shin appointed Hanyoung Accounting Corporation as the valuation institution. However, immediately after the first-instance decision, Hanyoung Accounting Corporation abruptly resigned. IMM Private Equity countered that this was no different from failing to fulfill the obligation, but the Seoul High Court held that, at least in form, the appointment had been made and therefore the initial appointment obligation was fulfilled. However, it found that Shin had not taken all necessary measures after the appointment to secure submission of the valuation report.
Attention on follow-up ICC arbitral award... Possibility of tougher measures
Industry observers expect the follow-up ICC arbitral award, likely to come around July or August, to be a watershed. Since the appellate court recognized the effectiveness of the indirect compulsory payment, there is talk that the ICC may issue a more hard-line decision. It could deem that Shin has effectively abandoned his valuation right. In that case, IMM would be able to conduct the valuation itself. The direct burden of the indirect compulsory payment could also be increased. It is already reported that IMM has asked the ICC to impose an indirect compulsory payment far exceeding 200,000 dollars per day.
There is also a view that the ICC could itself specify the deadline for submitting the valuation report. An international arbitration specialist lawyer said, "If Chairman Shin and the financial investors (FIs) engage in a truth game over the sincerity of the selection of the valuation firm, the ICC may skip over that issue and simply set a deadline for submission of the valuation report," adding, "In that case, to avoid the indirect compulsory payment, Chairman Shin will have to produce a valuation report as a concrete result by any means necessary."
Shin’s side plans to take the case all the way to the Supreme Court, but the follow-up ICC arbitral award, which is expected to come first, could have a direct impact on the Supreme Court’s deliberations. In general, ICC arbitral awards carry the same effect as a final court judgment in resolving international commercial disputes, and under the New York Convention, which has been signed by more than 170 countries, they can be recognized and enforced worldwide. If, in the unlikely event, the Supreme Court concludes that Shin did not do his utmost to appoint a valuation firm, there is a possibility that the indirect compulsory payment could be applied retroactively. In that case, Chairman Shin himself, not Kyobo Life Insurance, would have to shoulder a massive additional financial burden.
Ultimately, the significance of this appellate ruling lies more in the "constriction of strategic space" than in any "immediate financial burden." A source in the IB industry predicted, "It has become difficult for Shin’s side to continue contesting the arbitral tribunal’s orders merely on formal grounds," and added, "The future course of the dispute will depend on whether Chairman Shin moves toward substantive compliance or continues the legal battle to the end."
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