Court considers investment treaty Tribunal’s jurisdiction

Republic of Korea -v- Elliott Associates LP [2026] EWHC 368 (Comm)

This litigation relates to a challenge by the Republic of Korea (Korea) under s.67 of the Arbitration Act 1996 (1996 Act) to set aside a final arbitration award issued in an investment treaty arbitration between Korea and Elliott Associates LP (Elliott).

There have been two earlier decisions. In August 2024, the Commercial Court held that Korea’s challenge did not raise a jurisdictional issue and dismissed it without addressing the merits.

On appeal, the Court of Appeal overturned that decision and remitted the challenge back to the Commercial Court. For an analysis of the Court of Appeal decision, please see our article: Interpreting International Treaties | Hill Dickinson.

The Commercial Court has now allowed Korea’s s.67 challenge in part. It found that the Tribunal had jurisdiction over Korea as a Party to the relevant bilateral investment treaty (BIT). However, the Tribunal had no jurisdiction in relation to actions taken by the Korean National Pension Service, whose actions could not be attributed to the Korean State under the BIT.

The background facts

Elliott, a US investment firm, was a minority shareholder in Samsung C & T Corporation (SCT). It objected to a proposed merger between SCT and Cheil Industries, which was also part of the Samsung Group, but was unsuccessful in its attempts to challenge the merger in the Korean courts.

The resolution for the merger was passed because the Korean National Pension Service (NPS) voted in its favour. In doing so, NPS acted on behalf of the National Pension Fund of Korea (NPF), which was a minority shareholder in both SCT and Cheil, as well as other companies in the Samsung Group.

Elliott alleged that NPS’ actions breached the USA-Korea Free Trade Agreement (FTA). Specifically, Elliott argued that the Korean government had improperly interfered to ensure that the NPS cast its vote in favour of the merger and that these actions had breached the minimum standard of treatment and national treatment standards of the FTA (this claim was brought under Article 11.5 of the FTA, which guarantees fair and equitable treatment to covered investments).

The arbitration

Elliott commenced English-seated arbitration against Korea under Article 11.16 of Chapter 11 of the FTA. Chapter 11 contains a form of BIT, albeit concluded and taking effect as part of a wider subject-matter.

Korea contended that the Tribunal had no jurisdiction under the arbitration provision in Chapter 11. It argued that:

1. there was no relevant “measure” under Article 1.4 of the FTA, which provides that "Measure includes any law, regulation, procedure, requirement, or practice"

2. there had been no measures adopted or maintained by Korea because NPS was not a state entity

3. any measure did not relate to Elliott because there was no "legally significant connection" between the measures alleged and Elliott’s investment and Elliott as an investor.

The Tribunal disagreed and awarded Elliott damages of over US$48 million for breach of the minimum standard of treatment obligation under the FTA. The Tribunal held that:

1. the Article 1.4 definition of “measure” was not exhaustive

2. NPS had acted at the direction of the Minister of Health and Welfare (MHW) and effectively as an instrument of the MHW in implementing Korean government policy. NPS’ vote qualified as an exercise of governmental authority under the FTA and therefore also qualified as a “measure” within the meaning of the FTA

3. (By a majority), the measures in question did relate to Elliott or its investment sufficiently to establish a “legally significant connection” as required by the FTA.

The Mason award and judgment

Another overseas investor in SCT was the Mason group which owns and administers investment funds. The investment was made through Mason Capital LP and Mason Management LLC (together "Mason"). Mason commenced Singapore-seated arbitration proceedings against Korea under the FTA and faced the same objections to admissibility as were raised against Elliott.

The Tribunal in that case upheld Mason’s claims in April 2024. It held that:

i) A "measure" included “formal and informal conduct of the host state whether sovereign in nature or not."

ii) The intervention of the Korean Presidential Office (Blue House), other officials and ministers and the MHW, and of NPS, with a view to procuring a vote in favour of the merger were “measures” for FTA purposes.

iii) The measures in question were measures "relating to" Mason's investment in SCT shares. While a mere negative effect on an investor was not sufficient to establish the legally relevant connection required, the wording in question did not require conduct targeted at the investor or intended to cause harm, merely that the effect was "not merely tangential or consequential".

iv) The conduct of the NPS and its employees was not conduct of a de jure state organ for the purposes of Article 11.1(3)(a) of the FTA and (by a majority) the NPS was not a de facto state organ.

v) The conduct of the NPS and its employees was not attributable to Korea under Article 11.1(3)(b) of the FTA, because the impugned conduct did not concern a power which was governmental in nature.

vi) Article 11.1(3) excluded the operation of the principal of attribution reflected in Article 8 of the International Law Commission (ILC) draft Articles on Responsibility of States for Intentionally Wrongful Acts (ILC Articles).

vii) The conduct of the Blue House and other government ministers and officials and the MHW breached the FTA’s minimum standard of treatment protection under Article 11.5 in respect of the obligation of fair and equal treatment.

viii) The breach caused Mason loss, because without the interference of those persons in the NPS internal decision-making process, the merger would have been referred to the Experts Voting Committee (EVC), who would have voted against it.

The Singapore International Commercial Court subsequently dismissed Korea’s challenge to this award.

The Commercial Court decision

In making its decision, the Court took into account:

1. the relevant Articles of the FTA, as interpreted in accordance with the principles set out in the Vienna Convention on the Law of Treaties 1969 (Vienna Convention)

2. the ILC Articles, which provide an authoritative statement of international law on this subject, and accompanying ILA Commentary

3. relevant jurisprudence from the International Court of Justice (ICJ)

4. academic commentary

5. expert evidence on Korean law.

Status of NPS

The Court found that NPS was not a de jure State organ, primarily due to its separate legal personality. On the expert evidence, there was no concept of “State organ” as such under Korean law.

It was also highly unlikely that NPS could be considered as a de facto State organ. It did not perform core central State functions which would reduce or perhaps even eliminate the significance of its separate legal personality. The collection and investment of pension contributions and the distribution of payments were matters which need not necessarily constitute a state activity, while the NPS's highly significant actions in making and managing investments had a particularly commercial flavour. While these activities, taken together, did not have the effect of equating the NPS with a commercial trading entity, they were more than sufficient to distinguish the NPS from incorporated entities performing core state activities.

In voting for the Merger, did the NPS exercise powers delegated by the State?

Article 11.1.3(b) provides that the relevant measures must be adopted or maintained by:

"(b) non-governmental bodies in the exercise of powers delegated by central, regional, or local governments or authorities."

Therefore, the measure in issue must be one adopted or maintained by the NPS in the exercise of a sovereign, regulatory or governmental power, delegated to it by the State.

The Court accepted that the NPS did exercise some delegated State powers which were properly classified as governmental: for example, the setting and compulsory collection of pension contributions. However, the issue in this case concerned its exercise of voting powers arising from its ownership of SCT shares.

While the NPS's role of making investments with NPF contributions and achieving returns was one delegated to it by the Minister, absent which delegation it would not be acquiring shares and the voting rights attendant on them, it did not follow that the exercise of any power relating to the shares was a governmental power or one which was properly characterised as having been conferred on the NPS by delegation. In buying and selling shares, and in exercising the voting rights associated with them, the NPS was exercising essentially private law rights, with the voting rights in issue here being an incident of the NPS's ownership of a kind enjoyed by all SCT shareholders in proportion to their interest.

That NPS would be publicly accountable for its decisions and subject to public audit or regulatory decisions did not render its powers “governmental”. Such controls on how NPS’ powers were exercised did not change the nature of the power concerned where it was available as an ordinary incident of ownership. This was merely a public limitation on a private power.

Whether NPS’ acts were attributable to a central authority of Korea

"Article 8. Conduct directed or controlled by a State

The conduct of a person or group of persons shall be considered an act of a State under international law if the person or group of persons is in fact acting on the instructions of, or under the direction or control of, that State in carrying out the conduct."

Article 11.1(3) of the FTA provides:

"3. For purposes of this Chapter, measures adopted or maintained by a Party means 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."

The Court noted that Article 11 of the FTA did not provide for a rule of attribution similarly to Article 8 of the ILC Articles, although it did recognise the potential application of the rules of international law. However, in the Court’s view, those rules had to yield to the parties’ specific provision of applicable rules in the FTA.

Article 11.1(3) displaced the rule of international law which attributed the conduct of non-State parties to a State on the grounds specified in Article 8. That conclusion was supported by the Mason and other arbitration awards and reflected the fact that Article 11.1(3)(b) provided for the attribution of acts of non-State entities on a basis which required the exercise of a governmental power, a requirement which would not arise under Article 8. The Court was influenced by the Mason Tribunal’s reading of Article 11.1(3) as an exhaustive and self-contained list of the grounds for State attribution.

Consequently, only measures adopted or maintained by the President, the Blue House, the Minister and the MHW constituted measures adopted or maintained "by a Party" for Article 11.1(3) purposes and not measures adopted or maintained by the NPS.

The Court did, however, add that otherwise Article 8 would have been satisfied on the facts.

Is the subject of the claim a “measure” for the purposes of the FTA?

The Court found that the term “measure” was wider than argued by Korea, which had submitted that it was limited to some level of formal sovereign act. As found by the Mason Tribunal, the term comprised all acts or omissions by the host State. It did not exclude all conduct that could potentially be qualified as informal or commercial. The Singapore International Commercial Court also took this view in Mason.

The acts of the Blue House and other Korean government and officials to force through a favourable merger vote constituted a measure of these purposes. As did the decision of NPS to vote in favour of the merger.

Did the measure relate to Elliott or its investments?

The question of whether a "legally significant" connection was established required some measure of proximity between the measure and the harm rather than merely a collateral effect.

Where the measure was intended adversely to affect the investor or the investment, that would be sufficient. When the harm was a direct and foreseeable consequence of the measure, the "legally significant" connection was also likely to be met.

However, the mere ricochet effect of a measure aimed at a particular product or market on investors who would be indirectly affected, not because the measure applied to them, but because of their economic relationship with those to whom the measure did apply, would not satisfy the "legally significant" requirement.

The measures in this case adopted and maintained by Korea satisfied the test. The decision of the President, Blue House and the MHW to instruct NPS to vote in favour of the merger, and not to exercise any independent judgment on that issue, was one which immediately and directly impacted on Elliott as a shareholder. It was forced to surrender its SCT shares on unfavourable terms. The importance of the NPS vote in the fate of the merger was clear. Elliott led the opposition to the merger and was most publicly associated with that opposition. The Korean governmental authorities, therefore, had Elliott in their sights when they instructed NPS to vote in favour of the merger.

Effect of these findings on the s.67 challenge

The Blue House measures satisfied the jurisdictional requirement of Article 11.1(3), but the NPS measures did not. The challenged award involved findings concerning both sets of measures. Therefore, the Tribunal's findings, to the extent that they were dependent on the NPS itself being a de facto State organ, and thus the NPS's conduct constituting a measure adopted or maintained by NPS as a de facto State organ, were made without jurisdiction.

On the authorities, the Court can set aside part of an award under s.67, while leaving the remainder of the award in place and capable of being enforced, when it is apparent from the face of the award that that part of the award which is to remain capable of enforcement does not depend on those parts being set aside, and where there is no realistic possibility that the arbitrators would have made a different decision in the preserved part of the award but for those findings made in excess of jurisdiction.

In this case, the Court ordered that the award should be set aside insofar as it found that NPS was an organ of the State and found that the conduct of the NPS constituted a breach of Article 11.1(3) of the FTA.

However, difficult issues of causation arose. Were Elliott’s losses caused by the Blue House breaches of the FTA or by the (mistaken) attribution of NPS’s actions to Korea? These issues and the relief to be awarded were remitted back to the Tribunal for reconsideration.

The Court noted, however, that Elliott’s case in arbitration had not depended on the acts of NPS themselves constituting measures adopted or maintained by a party. Therefore, the amount of damages to which they were entitled might well remain the same.

Comment

The decision highlights the fact that just because an institution exercises some delegated State powers does not of itself make it a governmental body. It also provides a reminder that express provisions in a BIT can displace the rules of international law.

The judgment is not a full victory for Korea. The claim may survive and damages may remain unchanged depending on the Tribunal’s reconsideration. In practical terms, the outcome now turns on whether the Blue House measures alone breached Article 11.5 and caused Elliott’s loss. If so, the quantum may be materially the same notwithstanding the exclusion of NPS attribution. This is best understood as a partial procedural correction rather than an exoneration. Korea removed one attribution pathway but the core theory based on direct governmental conduct remains live on remittal.