Key takeaways
Treaties must follow international law principles
Domestic law and national policy cannot override global treaty standards.
Jurisdictional limits must be clearly met
Courts confirmed that treaty-based arbitration must meet specific scope requirements.
Uniform interpretation strengthens global legal consistency
Courts are encouraged to interpret treaties in a consistent way.
Republic of Korea -v- Elliott Associates LP [2025] EWCA Civ 905
In an important decision for those dealing with investment treaty arbitrations, the Court of Appeal has reiterated that international treaty provisions must be interpreted in accordance with customary international law principles and not according to domestic law principles or considerations of national policy.
The background facts
The dispute arose out of a proposed merger between two companies in the Samsung Group; Samsung C & T Corporation (SCT) and Cheil Industries (Cheil). Elliott Investments LP (Elliott), a US investment firm, was a minority shareholder in SCT.
Elliott opposed the proposed merger both with regard to its motivation and as to the manner of its execution and sought to challenge it in the Korean courts. It was unsuccessful in doing so and the resolution was subsequently passed due to the vote in favour by the National Pension Service, acting 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 the circumstances in which the resolution was passed and in which the NPS came to vote in favour of it involved breaches of the USA-Korea Free Trade Agreement (FTA). In particular, Elliott contended 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).
Elliott commenced arbitration seated in England and Wales against the Republic of Korea (Korea) under Article 11.16 of Chapter 11 of the FTA. Chapter 11, as the English Court subsequently explained, contains a form of bilateral investment treaty (BIT), albeit concluded and taking effect as part of a wider subject-matter.
The relevant Chapter 11 provisions
Section A of Chapter 11 deals with investments and is concerned with substantive protections offered by the FTA. Section B deals with dispute settlement.
Pursuant to Article 11.1(1) of Section A (scope and coverage), Chapter 11 applies to measures adopted or maintained by a party relating to: (a) investors of the other Party; (b) covered investments; (c) all investments in the territory of the Party.
Article 11.1(3) provides an explanation of what is meant by measures adopted or maintained by a party. Article 1.4 contains, among other things, a definition of “measure.”
Article 11.16(1) of Section B permits a claimant to submit its claim to arbitration if it alleges that it has suffered loss because the respondent has breached: (i) an obligation under Section A; (ii) an investment authorization; or (iii) an investment agreement.
Article 11.17 of Section B deals with the consent of each party to arbitration. Such consent and submission to arbitration has to satisfy ICSID and New York Conventions requirements that it be an agreement in writing.
The objection to jurisdiction
Korea contended that the arbitral tribunal lacked jurisdiction under the arbitration provisions in Chapter 11.
Korea contended that:
There was no relevant “measure”;
There was no measure “adopted or maintained” by Korea;
The measure did not “relate to” Elliott or its investment.
The arbitration award
The tribunal held that it had jurisdiction and that there had been a breach of the minimum standard of treatment obligation under the FTA. It awarded Elliott damages of over US$48 million.
Section 67 of the Arbitration Act 1996
Korea applied under s.67 (substantive jurisdiction) of the Arbitration Act 1996 (the Act) to set aside the award.
Pursuant to s.30 of the Act, substantive jurisdiction encompasses the following:
whether there is a valid arbitration agreement;
whether a tribunal is properly constituted; and
what matters have been submitted to arbitration in accordance with the arbitration agreement.
The Commercial Court decision
The Court considered whether Korea’s challenges went to the substantive jurisdiction of the Court.
It was common ground that the FTA should be interpreted according to the principles set out in the Vienna Convention on the Law of Treaties (VCLT). However, the Court stated that as the arbitration was seated in England and Wales and was subject to the provisions of the Act, English case-law was more relevant than international investment treaty jurisprudence in this instance.
Having reviewed the English authorities, the Court concluded that the States’ offer to investors to arbitrate in Article 11.16 of the FTA was freestanding and not conditional on the requirements of Article 11.1(1) being met. It followed that Korea’s challenges did not go to the substantive jurisdiction of the tribunal, the tribunal having jurisdiction to determine disputes between States and investors, including as to whether the requirements of Article 11.1(1) were satisfied.
Recognising that the contrary argument had a real prospect of success, however, and also that the point was of some importance in the context of challenges to investment treaty awards, the Court granted permission to appeal.
State intervention
Following the Commercial Court decision, the US Department of State informed the Ministry of Justice in Korea, via a diplomatic note, that it considered that Article 11.1 of the FTA defined the scope of Chapter 11 in its entirety and that a tribunal constituted under Chapter 11 had no jurisdiction unless the Article 11.1(1) requirements were met. The Korean Ministry of Justice responded, expressing its agreement on this point.
The Court of Appeal decision
The Court of Appeal has allowed Korea’s appeal. It agreed that Article 11.1(1) of the FTA sets down jurisdictional requirements which must be satisfied in order for there to be an offer to arbitrate in Section B of Chapter 11.
The FTA should be interpreted in accordance with VCLT principles, reflecting customary international law. It was desirable that the courts of all signatory states, including England and Wales, interpret international treaties uniformly. There was, therefore, no scope for the English Court to consider issues of national policy, as the lower court had suggested.
Whilst that might give rise to an issue as to whether the arbitral tribunal had substantive jurisdiction by virtue of English domestic legislation (s.30 of the Act), the answer to the treaty interpretation question was a matter of international law and had to be the same (or at least approached in the same way) whether being determined by an investment treaty tribunal or the English Court.
In the Court of Appeal’s view, it was not relevant to draw principles from English authorities as to whether particular issues would be jurisdictional for s.67 purposes. It was also not appropriate to take into consideration, as the lower court had done, that deciding an issue was a jurisdictional one for these purposes meant that it would be dealt with de novo by a municipal court in circumstances where such matters were arguably better dealt with by the investment treaty tribunal.
Furthermore, there was no suggestion that, in drafting the relevant provisions, Korea and the USA had in mind English domestic law as to jurisdictional challenges to arbitration awards, and there was therefore no basis for importing and applying “rules” of construction or presumptions drawn from a collection of first instance decisions of the English courts.
Pursuant to the VCLT, the required focus is on the ordinary meaning of the words used, interpreted in their context and in the light of the object and purpose of the treaty in question.
The Court of Appeal concluded that the scope and coverage requirements of Article 11.1(1) applied to Section B of Chapter 11 and imposed jurisdictional limitations on the right to arbitrate. Korea’s application under s.67 was, therefore, referred back to the Commercial Court for determination on its merits.
Comment
This is a significant decision for those dealing in investment treaty arbitrations, particularly where they are seated in England and Wales.
The Court of Appeal’s interpretation is in line with the views expressed by both the U.S. and Korean governments in diplomatic correspondence, namely the State intervention.
Ironically, with the potential reversal of roles between claimant and respondent, the case is especially relevant in light of recent developments in which Korean companies in the automobile, steel, and semiconductor sectors may face discriminatory U.S. tariffs and regulations, despite substantial investments in the U.S. Such actions could constitute breaches of Article 11.5 of the FTA, which guarantees fair and equitable treatment to covered investments.
It remains to be seen whether Elliott will seek to appeal the Court of Appeal decision to the Supreme Court.
