The British High Court set aside the 2023 investor-state dispute settlement (ISDS) award, meaning the arbitration decision can no longer stand. The case will now return to arbitration proceedings.
The dispute stems from the controversial 2015 merger of Samsung C&T and Cheil Industries. Elliott, then a shareholder of Samsung C&T, filed the ISDS claim in 2018 under the Korea-U.S. Free Trade Agreement (FTA), arguing that it suffered losses after the National Pension Service (NPS) backed the merger.
In June 2023, the Netherlands-based Permanent Court of Arbitration (PCA) ordered Seoul to pay $107.8 million in damages and interest. With accrued interest, the compensation had risen to about 160 billion won as of this month — roughly 7 percent of Elliott’s original claim of more than 1 trillion won.
Seoul immediately sought to annul the award in the UK, the seat of arbitration, arguing that the tribunal had exceeded its jurisdiction. A first-instance court dismissed the challenge in August 2024, ruling that the relevant FTA provisions were outside the scope of review under the UK Arbitration Act.
But the UK Court of Appeal reversed that decision in July last year and sent the case back to the High Court. In the remanded proceedings, the High Court sided with the Korean government and formally set aside the award.
NPS not a “state organ”
At the heart of the case was whether the National Pension Service qualifies as a state organ under international law — a key “gateway” requirement for ISDS claims under Article 11.1 of the Korea-U.S. FTA.
The UK court accepted Seoul’s argument that the NPS has a separate legal personality from the government, that pension fund management is not a core sovereign function such as defense or public security, and that its day-to-day investment decisions are not fully subordinate to the state.
The ruling marks the first time an overseas court has recognized that the NPS’ exercise of shareholder voting rights cannot automatically be treated as state action for ISDS purposes, a precedent the Justice Ministry said would help shield Korea from future treaty-based claims by activist funds.
However, the court noted that actions by the Blue House and the Ministry of Health and Welfare related to the merger could still qualify as “relevant measures” under the FTA, meaning those issues may be revisited in renewed arbitration.
Justice Minister Jeong Seong-ho called the decision a significant victory, noting that UK courts overturn arbitration awards in only about 3 percent of cases.
“We pierced the narrow needle’s eye,” Jeong said at a briefing, adding that the government spent only about one-sixth of Elliott’s legal costs in pursuing the challenge.
The win follows another high-profile ISDS outcome last year in which Seoul avoided roughly 400 billion won in damages in a dispute with Lone Star over the sale of Korea Exchange Bank.
Elliott is expected to appeal the UK ruling. If it does not, the arbitration tribunal will reconsider the matter, this time excluding the NPS from the scope of state liability.
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