Public pension funds (PPFs), which may be defined as large pool of capital owned and managed directly or indirectly by governments to finance public pension systems (see OECD), are recently named “the most influential capital on the planet” – a November 2023 study by Thinking Ahead Institute reported that PPFs make up 52.8% of the world’s largest 100 asset owners, larger than the assets under management of sovereign wealth funds (SWFs) (On the difference between both forms of state-owned investment vehicles, see here). Global SWF already observed in 2021 that PPFs “have gained in significance and activity to such an extent that they are today similar in behaviour to SWFs”. It is thus not unexpected that PPFs will start getting involved in transnational dispute settlement proceedings and attract scrutiny with respect to their corporate identity and their formal ties with the state, as has been the case with SWFs (see here and here). Notably, in June 2023, an UNCITRAL tribunal interpreted the Investment Chapter of the 2007 Korea-US Free Trade Agreement (KORUS) to allow the US hedge fund Elliott Associates to sue the Republic of Korea for the commercial decision of a Korean PPF in connection with a 2015 merger tainted by corruption at the highest governmental level.
This blog post examines a contentious aspect of the Elliott Associates v. Korea Award, i.e., whether the exercise of shareholder voting rights by Korea’s National Pension Service (NPS) in the context of a merger vote qualified as “measures adopted or maintained by” Korea under KORUS. The tribunal ruled that NPS was a de facto state organ, and its actions were therefore “attributable to the Korean state”. This reasoning underpinned the tribunal’s exercise of jurisdiction over an essentially intercompany dispute arising from a commercial act, which arguably broadened the treaty’s coverage. Key to this outcome was the tribunal’s conflation of attribution tests under KORUS and law of state responsibility without clear justification. The award is currently subject to set-aside proceedings in the United Kingdom, precisely on the correctness of the tribunal’s finding on subject-matter jurisdiction. Furthermore, Korea is facing a separate, ongoing UNCITRAL arbitration brought by another US hedge fund also arising from NPS’s actions in the same merger vote, making this analysis timelier than ever.
Attribution as a jurisdictional issue and the law of state responsibility: jumping over the small gate?
The Elliott case arose from the 2015 merger between two subsidiaries of the Samsung group of companies, Samsung C&T and Cheil Industries. Elliott, a minority shareholder in Samsung C&T, had vocally opposed the deal for diminishing the value of its investments and waged a shareholder campaign to block it, which was unsuccessful. The dispute entered the investment treaty realm after facts became public of quid pro quo between high-ranking Korean politicians and tycoons to rig the voting, including Korea’s former president, former minister of health and welfare, and Samsung vice chairman. According to reports, they pressured the management of NPS, another minority shareholder and the holder of the casting vote at the Samsung C&T special meeting on the merger, to approve the deal to protect the interests of the family-controlled Samsung group and assist with the latter’s controversial succession plan. NPS itself was established as a PPF management corporation with a separate legal personality from the Korean government, incorporated to manage the country’s pension reserve funds under the National Pension Act (Arts. 1, 24, 26). In the arbitration, Elliott convinced the tribunal that NPS’s merger vote, influenced by the government, was arbitrary and violated the Minimum Standard of Treatment provision of the KORUS, ordering Korea to pay US$53.6 million in damages.
At the outset, the tribunal was called upon to decide on whether the impugned measure, i.e., NPS’s exercise of voting rights, fell under Article 11.1 KORUS (titled “Scope and Coverage”). Pursuant to Article 11.1.1, the treaty’s investment chapter applies to “measures adopted or maintained by a Party”, defined, for the purposes of the KORUS Investment Chapter, in Article 11.1.3 of KORUS as:
measures adopted or maintained by
(a) Central, regional, or local governments and authorities; and
(b) Non-governmental bodies in the exercise of powers delegated by central, regional, or local governments or authorities.
It is important to note that this provision concerns the scope of measures covered by the Investment Chapter, i.e., jurisdiction ratione materiae. In determining its own jurisdiction, the tribunal neither ruled unequivocally that NPS is…
A comment on Elliott Associates v. Korea – EJIL: Talk!
Public pension funds (PPFs), which may be defined as large pool of capital owned and managed directly or indirectly by governments to finance public pension systems (see OECD), are recently named “the most influential capital on the planet” – a November 2023 study by Thinking Ahead Institute reported that PPFs make up 52.8% of the world’s largest 100 asset owners, larger than the assets under management of sovereign wealth funds (SWFs) (On the difference between both forms of state-owned investment vehicles, see here). Global SWF already observed in 2021 that PPFs “have gained in significance and activity to such an extent that they are today similar in behaviour to SWFs”. It is thus not unexpected that PPFs will start getting involved in transnational dispute settlement proceedings and attract scrutiny with respect to their corporate identity and their formal ties with the state, as has been the case with SWFs (see here and here). Notably, in June 2023, an UNCITRAL tribunal interpreted the Investment Chapter of the 2007 Korea-US Free Trade Agreement (KORUS) to allow the US hedge fund Elliott Associates to sue the Republic of Korea for the commercial decision of a Korean PPF in connection with a 2015 merger tainted by corruption at the highest governmental level.
This blog post examines a contentious aspect of the Elliott Associates v. Korea Award, i.e., whether the exercise of shareholder voting rights by Korea’s National Pension Service (NPS) in the context of a merger vote qualified as “measures adopted or maintained by” Korea under KORUS. The tribunal ruled that NPS was a de facto state organ, and its actions were therefore “attributable to the Korean state”. This reasoning underpinned the tribunal’s exercise of jurisdiction over an essentially intercompany dispute arising from a commercial act, which arguably broadened the treaty’s coverage. Key to this outcome was the tribunal’s conflation of attribution tests under KORUS and law of state responsibility without clear justification. The award is currently subject to set-aside proceedings in the United Kingdom, precisely on the correctness of the tribunal’s finding on subject-matter jurisdiction. Furthermore, Korea is facing a separate, ongoing UNCITRAL arbitration brought by another US hedge fund also arising from NPS’s actions in the same merger vote, making this analysis timelier than ever.
Attribution as a jurisdictional issue and the law of state responsibility: jumping over the small gate?
The Elliott case arose from the 2015 merger between two subsidiaries of the Samsung group of companies, Samsung C&T and Cheil Industries. Elliott, a minority shareholder in Samsung C&T, had vocally opposed the deal for diminishing the value of its investments and waged a shareholder campaign to block it, which was unsuccessful. The dispute entered the investment treaty realm after facts became public of quid pro quo between high-ranking Korean politicians and tycoons to rig the voting, including Korea’s former president, former minister of health and welfare, and Samsung vice chairman. According to reports, they pressured the management of NPS, another minority shareholder and the holder of the casting vote at the Samsung C&T special meeting on the merger, to approve the deal to protect the interests of the family-controlled Samsung group and assist with the latter’s controversial succession plan. NPS itself was established as a PPF management corporation with a separate legal personality from the Korean government, incorporated to manage the country’s pension reserve funds under the National Pension Act (Arts. 1, 24, 26). In the arbitration, Elliott convinced the tribunal that NPS’s merger vote, influenced by the government, was arbitrary and violated the Minimum Standard of Treatment provision of the KORUS, ordering Korea to pay US$53.6 million in damages.
At the outset, the tribunal was called upon to decide on whether the impugned measure, i.e., NPS’s exercise of voting rights, fell under Article 11.1 KORUS (titled “Scope and Coverage”). Pursuant to Article 11.1.1, the treaty’s investment chapter applies to “measures adopted or maintained by a Party”, defined, for the purposes of the KORUS Investment Chapter, in Article 11.1.3 of KORUS as:
It is important to note that this provision concerns the scope of measures covered by the Investment Chapter, i.e., jurisdiction ratione materiae. In determining its own jurisdiction, the tribunal neither ruled unequivocally that NPS is…
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