Korean Government Defeats Schindler... No Need to Pay 325 Billion Won in Damages

The Government of the Republic of Korea has won a complete victory in the main Investor-State Dispute Settlement (ISDS) case filed in 2018 by Swiss elevator company Schindler Holding AG, which sought damages in the range of 300 billion won. This is the second time Korea has prevailed in full in an ISDS merits case, following a dispute brought by a Chinese investor in 2018. As a result of this win, the government is not only exempt from paying 325 billion won in damages, but will also recover 9.6 billion won in litigation costs.
According to the Ministry of Justice of the Republic of Korea and other authorities on the 15th, the Government of the Republic of Korea received a unanimous ruling in its favor from the arbitral tribunal at around 2 a.m. on the 14th in the ISDS case brought by Schindler Holding AG.
In October 2018, Schindler Holding AG initiated an ISDS claim against the Korean government under the Korea–European Free Trade Association (EFTA) investment agreement. The company initially sought approximately 490 billion won in compensation, later reducing its claim to 325 billion won at the final stage of the proceedings.
In a typical ISDS case, the investor alleges that it suffered losses due to the other state’s regulatory measures. Schindler Holding AG, however, argued that it incurred losses because the Korean government failed to regulate adequately. At the time, Schindler Holding AG had invested in Hyundai Elevator, and it claimed that Hyundai Elevator engaged in actions harmful to shareholders, such as paid-in capital increases, yet the Korean authorities did not properly regulate these actions, causing the company financial damage.
Schindler Holding AG’s arguments can be summarized in three main points: first, that Hyundai Elevator carried out unnecessary paid-in capital increases between 2013 and 2015 and transferred call options to management at a bargain price; second, that the Financial Supervisory Service conducted its review of Hyundai Elevator’s capital increases negligently; and third, that the Korean government discriminated against Schindler Holding AG as a foreign investor.
In response, the Government of the Republic of Korea argued, "The essence of this case is nothing more than a shareholder dispute over management control between Schindler Holding AG and the Chairwoman of Hyundai Group," adding, "Each measure taken by the Korea Fair Trade Commission (KFTC), the Financial Services Commission (FSC), and the Financial Supervisory Service (FSS) strictly complied with domestic laws and established practice." During the arbitration proceedings, the government demonstrated that the FSS’s review of Hyundai Elevator’s paid-in capital increases and its investigation into the transfer of call options were conducted lawfully. Furthermore, even assuming Schindler Holding AG’s claims were accepted, the government emphasized that the company had already received substantial damages from Hyundai Group through the Korean judicial system, underscoring that it had obtained legal redress domestically. In fact, in March 2023, Schindler Holding AG ultimately prevailed against the Chairwoman of Hyundai Group at the Supreme Court of Korea and received 281.5 billion won in April of that year, including damages and interest.
An official at the Ministry of Justice stated, "The arbitral tribunal rejected all of Schindler Holding AG’s allegations that the Korean regulatory authorities acted arbitrarily or unfairly," and added, "This decision blocks attempts by foreign investors to obtain astronomical damages by reframing private disputes as state responsibility under international law."
Meanwhile, the Government of the Republic of Korea also prevailed in an ISDS merits case decided on May 31, 2024, that had been brought by a Chinese investor. In that case, Chinese investor Mr. Min claimed to have suffered losses due to the Korean government and filed an ISDS claim seeking 264.1 billion won in damages, down from an initial 2 trillion won, but the arbitral tribunal dismissed the claim in its entirety. It was the first case in which the Korean government achieved a complete victory in an ISDS dispute that proceeded through a full merits hearing, and at the time the government stated that the ruling confirmed the principle that "illegal investors are not protected under ISDS."
hwlee@fnnews.com Lee Hwan-joo Reporter