Korea challenges PCA ruling in favor of Mason Capital over Samsung case

South Korea is seeking to revoke an international tribunal’s ruling in April that its government must pay US-based Mason Capital Management LLC $32 million in compensation for its investment losses related to a 2015 merger of two Samsung Group affiliates.

The Ministry of Justice said on Thursday it has filed a complaint with the Permanent Court of Arbitration (PCA) in Singapore, seeking a reversal of the PCA decision, which the ministry said had “judicial errors.”

“We concluded that the PCA erroneously interpreted the conditions for jurisdiction stated under the South Korea-US free trade agreement, resulting in an unfair ruling,” the ministry said in a statement. “After in-depth discussions with our law firms and legal experts, our government has decided to file a suit against the case.”

The Korean move is in response to the Netherlands-based PCA’s ruling in an investor-state dispute settlement (ISDS) case, which the US hedge fund lodged in 2018, demanding over $200 million in compensation for alleged losses from its investment in Samsung. The tribunal partially accepted Mason Capital’s claims, ordering the Korean government to pay $32 million, including legal costs.

The ISDS case dates back to 2018 when Mason Capital sought compensation from the Korean government, arguing that it suffered investment losses because the government intervened in the 2015 merger of two Samsung units – Samsung C&T Corp. and Cheil Industries Inc. The US fund opposed the merger but failed to block it.

Mason, with a 2.18% stake in Samsung C&T, accused the then-Park Geun-hye administration of exerting pressure on the state-run National Pension Service (NPS), a major shareholder of the Samsung unit, to approve the merger in 2015, which was carried out at a price unfavorable to Samsung C&T. The fund’s operator, the Ministry of Health and Welfare, denied the claim.

‘LEGALLY FLAWED’

The justice ministry said on Thursday the international tribunal misconstrued unofficial misconduct by individual civil servants, including former President Park, as government action, thus its ruling failed to meet ISDS case requirements.

The ministry also said Mason Capital wasn’t a legal shareholder of Samsung C&T but just a general partner acting on behalf of a fund in the Cayman Islands, which was the actual owner of the Samsung stake.

“NPS’ decision at the time was entirely based on its judgment as a shareholder. The claim that the government meddled in NPS’ decision is unacceptable,” it said. “We’ll do our best to prevent any outflow of national wealth.”

KOREA TOOK ACTION AGAINST ELLIOTT, TOO

In 2018, US hedge fund Elliott Investment Management Corp., which held a stake in Samsung C&T, also took issue with NPS’ approval of the Samsung merger and brought the case to the International Center for Settlement of Investment Disputes (ICSID).

In June 2023, the international arbitration tribunal ruled in favor of Elliott, ordering the Korean government to pay Elliott $53.6 million in compensation, which represented about 7% of the US hedge fund’s original request of $770 million.

Regarding the Elliott case, the justice ministry challenged the ICSID’s ruling.

In July 2023, the Korean government filed revocation litigation with a court in England, where the arbitration is taking place, citing a violation of jurisdiction. The case is ongoing.

Write to Yong-Hoon Kwon at fact@hankyung.com

In-Soo Nam edited this article.