[Editorial] Government Victory Over Elliott Management Also Merits Praise for Its ISDS Response Capacity

The Government of South Korea won a ruling on the 23rd in an Investor–State Dispute Settlement (ISDS) case brought by Elliott Management, a U.S.-based hedge fund. The UK court in charge of reviewing the arbitration accepted the South Korean government’s application to set aside an award by the Permanent Court of Arbitration (PCA), ultimately siding with our government. As a result, the government has been freed from liability for damages of about 160 billion won. The case will now be remanded to a new arbitration proceeding. Elliott Management still has ample room to appeal. We hope the government will continue to use a sophisticated strategy to fend off indiscriminate litigation by foreign speculative capital until the very end.
It is fortunate that this victory has prevented a massive waste of tax money, but it is even more noteworthy that it demonstrates how much the Government of South Korea has matured in handling ISDS disputes. The rate at which arbitral awards are set aside in disputes between foreign investors and states is extremely low.
According to the government, the rate at which UK courts have granted applications to set aside arbitral awards over the past two years is only about 3%. Taking into account the earlier dispute with U.S. private equity firm Lone Star Funds, our government has effectively passed through the eye of the needle twice. The persistence of the government’s legal team and officials, who did not give up despite the low success rate, deserves high praise. It is a fresh reminder of the value of public servants who quietly fulfill their duties in the national interest.
Many observers had viewed Elliott Management’s lawsuit as overreaching from the outset. As a shareholder of the former Samsung C&T Corporation, Elliott Management opposed the merger between Samsung C&T Corporation and Cheil Industries. After the merger went through, it took issue with the National Pension Service (NPS) exercising its voting rights in favor of the deal and, in July 2018, filed an Investor–State Dispute Settlement (ISDS) claim under the United States–Korea Free Trade Agreement (KORUS FTA). At the time, Elliott Management demanded a staggering 770 million dollars in compensation, equivalent to about 1.127 trillion won.
The Permanent Court of Arbitration (PCA) in the UK ruled in June 2023 that the National Pension Service (NPS) should be regarded as a state organ and ordered the Government of South Korea to pay damages. Our government refused to accept this and brought an action to set aside the award. In August 2024, a UK court of first instance dismissed the government’s claim, but in July last year the Court of Appeal sent the case back to the lower court. In the remanded proceedings, the Government of South Korea ultimately prevailed again.
The UK court held that the National Pension Service’s routine decision-making is not fully subordinated to the government and that it has a separate legal personality from the state, concluding that it cannot be regarded as a state organ. Domestic courts had already reached similar conclusions in damages suits filed by domestic investors. There was already ample basis to say it was difficult to view the NPS’s decision on the merger as having been dictated by government pressure. Even so, Elliott Management unreasonably dragged the government into the dispute as a respondent. It is hard not to see this as stemming from an underestimation of the Government of South Korea and the Korean market.
There have been more than ten ISDS cases brought by foreign funds against the Government of South Korea. Some argue that the pace of these cases is an even bigger problem than the sheer number. To avoid becoming easy prey for foreign speculative funds, both the government and companies must strengthen their ISDS response capabilities twofold or threefold. International investment disputes are likely to grow at an even faster pace in the future. Building on the strength it showed in defeating Lone Star Funds and Elliott Management, the government must respond firmly to speculative funds.