OPUS2
Elliott Associates, L.P. v Republic of Korea
Day 3
November 17, 2021
Opus 2 - Official Court Reporters
Phone: 020 3008 6619
Email: [email protected]
Website: https://www.opus2.com
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Wednesday, 17 November 2021
(9.00 am)
Housekeeping
THE PRESIDENT: Good morning, all. Welcome to the third day of the hearing. Before we continue with Mr Smith, are there any case management issues to be raised?
MR PARTASIDES: Mr President, good morning, members of the tribunal. Again, none on our side, thank you.
THE PRESIDENT: And the Respondent?
MR TURNER: As is becoming traditional, we have one or two, but they are not, I hope, too controversial.
The first, sir, is that I inadvertently showed the wrong confidentiality disclaimer on my slides yesterday.
I had only picked it up just before and I had projected at slide 154 a confidentiality disclaimer from the famous unnamed Big Four accounting firm rather than from Deutsche Bank, as I had been explaining.
We have sent a copy of the replacement slide with the extract from the correct letter from counsel for the Claimant to my learned friend who does not object to our changing it. There it is.
We can provide everybody with hard copies if that is what you would like or send you soft copies. I think it's fair to say that in the great scheme of things, it's -- whichever you prefer, we are very happy to do.
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our opening submissions yesterday.
In Mr Lingard's case, it's a bit of both.
THE PRESIDENT: Any comments, Mr Partasides?
MR PARTASIDES: I'm trying to -- it's working.
Mr President, we're always happy to receive corrections from our friends opposite, thank you.
THE PRESIDENT: Mr Turner.
MR TURNER: In that comradely spirit, sir, let me just read onto the transcript. It's yesterday's uncorrected transcript, [draft] Day 2, page 171, lines 6 to 7. I said:
"I ask you to look at the market price that both experts say is reliable."
Of course I do not -- I do understand that Mr Boulton does not consider the market price to be reliable. I meant to refer to his accepting that the market is efficient, just to make that clear. And I will pass the floor to Mr Lingard to make his own mea culpa.
THE PRESIDENT: Thank you very much, Mr Turner, Mr Lingard.
MR LINGARD: Mr President, thank you. Two brief points, if I may.
First, I misspoke at page 126 of yesterday's transcript, lines 24 to 25. This was simply misspeaking. I incorrectly said that the SK merger
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THE PRESIDENT: Hard copy for Mr Thomas and for Mr Garibaldi. I'm fine with an electronic version.
MR TURNER: Very good. We will hand those out. I assume that my learned friend is happy with an electronic copy, indeed has an electronic copy. But if they would like a hard copy as well, they have only to ask.
So that's the first point, sir.
The second point is that both Mr Lingard and I, with the leave of the tribunal, would like to make some one minor correction each to something that we said to the tribunal in opening yesterday and we are concerned not to be seen to have misled anybody about what our position or in my case the other side's position is.
With the leave of the tribunal, we will just read on to the transcript the position as it should be. Obviously if my learned friend wishes to say anything in answer to that, then we would be very happy for him to do so.
THE PRESIDENT: It's a description of the Respondent's position or a description of the Respondent's understanding of the Claimant's position?
MR TURNER: A little bit of both, sir. In my case it is a description of the Claimant's economic expert's position and I want to be clear that I know what that is and that I understand that I mis-stated it at the end of
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failed. In fact, of course, that merger passed.
The second point was not misspeaking but rather perhaps further evidence of the dangers of non-Korean lawyers pleading Korean administrative law. It's at page 141, lines 23 to 25 of the transcript. There I was addressing the question of the relationship between two sets of guidelines, the Fund Operational Guidelines and the Voting Guidelines. I am in fact instructed as a matter of administrative law in Korea they sit on an equal plane; there is not a hierarchy between them, but of course you have our submission that they are in any event wholly consistent on their text and application.
That will be a matter that can be explored further with the experts in due course.
Thank you, sir.
THE PRESIDENT: Thank you very much. I trust we are going to hear from the experts on that point later in the week. So we go on, Mr Lingard.
MR LINGARD: Mr Smith, good morning.
A. Good morning.
Q. When we finished last night we finished looking at the reports to you from IRC. I want to turn now briefly to another of the external advisers that assisted Elliott
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with the Samsung C&T investment. That's Spectrum Asia.
To set the scene, can I invite you, please, to open exhibit R-254. It's in volume 3 at tab 55. {R/254/1}.
A. Yes, I have tab 55.
Q. That is an email, sir, from your colleague, Nicholas Maran, to yourself and other colleagues at Elliott?
A. Yes.
Q. And it's dated 18 March 2015, to ensure we're looking at the same document, sir?
A. Yes.
Q. Very good. The first line reads:
"Attached is the update on Samsung C&T (background on board, connections to Government and [Redacted] family) from Spectrum (update from the previous version we sent)."
Do you see that, Mr Smith?
A. I see that.
Q. We only have the version -- we in this arbitration -- that was attached to this email. Do you recall seeing a previous version?
A. I recall only seeing one version, yes, so I don't recall any other versions.
Q. You don't recall the previous --
A. I don't --
Q. -- version that Mr Maran refers to?
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Q. Very good. Let's go to the report itself. It's the next tab in the binder, tab 56. It's exhibit R-255. {R/255/1}.
We see it's the report from Spectrum Asia. The date on the cover is March 19, 2015.
A. I see that.
Q. If you would turn with me to page 3, sir, we see the assignment described there {R/255/3}.
A. Yes.
Q. Take a moment to read it if you would, please. (Pause)
A. Yes.
Q. So Elliott asked Spectrum to advise on Samsung's succession process. That's right, isn't it?
A. Correct, yes.
Q. And on dynamics behind South Korea's Chaebol groups?
A. Correct.
Q. Including in particular the connections and conflicts between senior management, the controlling families, and government that help drive decision-making?
A. That appears to be what it describes.
Q. Very good. Let's go to page 4 then, please {R/255/4}. This is where Spectrum summarises its advice to Elliott.
A. Yes.
Q. If you would go to the second paragraph on page 4, please.
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A. I don't recall the previous version, but in my role I would typically only review these documents at a high level. So that's my recollection.
Q. Very good. Let's go to the second paragraph of this email. We can see that Mr Maran is telling you that this version, this updated version, fleshed out the background on the independent directors. Do you see that?
A. Yes.
Q. Then go to the third paragraph with me, if you would. The other items worth noting have been reported via our missives, summaries, including the clear ties between C&T CEO and President [Redacted] and so on; do you see that, sir?
A. I see that, yes.
Q. And so to make sure I'm understanding Mr Maran's email to you, sir, attaching the Spectrum Asia report, what Mr Maran was telling you here was that apart from the information on the independent directors that was fleshed out, everything else here had already been reported internally at Elliott is that how you understood Mr Maran's email, sir?
A. That seems correct from what I read in the paragraph. I don't recall all of the various missives and summaries in detail, but that's what Mr Maran is saying.
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A. Yes.
Q. Can I invite you, please, to read for the arbitral tribunal the first sentence of that second paragraph on page 4 of Spectrum's advice to Elliott?
A. "A merger of C&T with Cheil Industries forms part of all known options, is considered inevitable, and believed the only viable method of increasing the [Redacted] family's stake in flagship Samsung Electronics."
Q. So we understand, sir, C&T there is a reference to Samsung C&T; that's right, isn't it?
A. That's correct.
Q. And if I have your earlier testimony correct, in March of 2015 this was not a new point worth mentioning internally at Elliott?
A. Yes, in fact I recall mentioning our restructuring proposals and a merger involving C&T and Cheil Industries was also part of that. There were a lot of different scenarios out there, all of them certainly in our mind predicated on any such merger being on fair terms.
Q. Let's explore Spectrum's advice on that very point, Mr Smith, if you would turn with me to page 8, please {R/255/8}.
A. Yes.
Q. And take a moment to study the second paragraph on
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page 8 of Spectrum's advice to Elliott. (Pause)
A. Yes.
Q. Spectrum advised you that even if a merger is not in the best interests of shareholders, Korean institutional investors do not have a strong record of objecting to Chaebol family management. That's right, isn't it?
A. That's what it says here, although I believe later in the point there's some commentary on -- later in the report there's some commentary on NPS being shareholder value focused. So the Korean institution investors, taken in that context, can mean non-NPS Korean institutional investors and that's what we saw in the merger vote, that all of them, the non-NPS Korean institutions, practically all of them voted in favour of the merger as expected.
Q. I see. We'll come on to see what Spectrum had to say about NPS in just a moment, but bear with me and go to page 9, if you would {R/255/9}.
A. Yes.
Q. I'm focused on the long paragraph in the middle of the page, the one that begins "as for any obstacles the merger might encounter"; do you have it?
A. Yes.
Q. So we see there that Spectrum advised you that Samsung's lobbying capabilities were second to none such that it
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had to review them in the context of a range of views and reports, much information coming from many sources. Sometimes they were fairly accurate. Other times they completely missed critical factors.
So if that gives you some colour, but that's how I think about it.
MR THOMAS: That makes sense. That makes perfect sense to me. But they're worth retaining.
A. Sorry?
MR THOMAS: They're worth retaining, though?
A. Yes, they're worth retaining, yes.
MR LINGARD: Thank you, Mr Smith.
Would you go with me to page 24 of Spectrum's report, please. {R/255/24}
A. Yes.
Q. I'm looking at the third full paragraph on that page, the one that begins with the underlined words "according to a political analyst"; do you have it?
A. I do, yes.
Q. There Spectrum Asia told you that Samsung Group companies were more national assets than individual corporate concerns; do you see that?
A. Just -- let me just read the paragraph. (Pause). Yes, I see that.
Q. In fact they told that you that was a national
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could overcome any obstacles to the merger; you see that, sir?
A. Yes, I see that. I see that.
Q. Go ahead with me then if you would then to page 24 of Spectrum's advice to Elliott from March of 2015 {R/255/24}.
MR GARIBALDI: May I ask a question, please?
Counsel is asking questions in reference to Spectrum's advice. I would like to know if this was Spectrum's advice or Spectrum reporting on someone else's opinions.
A. So it's effectively the latter. Spectrum is one of a number of consultants we would use that would source commentary and input from a variety of sources and package it up in a summary like the report you see here.
MR GARIBALDI: Thank you.
MR THOMAS: Just to follow up on that question, how often had you used Spectrum prior to this particular engagement?
A. I couldn't give you a precise frequency, but frequently, over many years.
MR THOMAS: Did you consider them to be competent in what they did?
A. The way I thought about the Spectrum report and many similar reports that we would frequently procure is you
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consensus; do you see that?
A. That's -- that's the phraseology they use, yes.
Q. If we go then to the next page, please, {R/255/25}, I'm looking at the second paragraph on page 25 of the Spectrum report to Elliott from March of 2015.
A. Yes.
Q. And in that second paragraph I'm looking at the second sentence there. Spectrum told you that the merger between Samsung C&T and Cheil was necessary. That's right, isn't it?
A. That's what it says.
Q. In fact, Spectrum went on to say that failure of the merger would be possibly destructive to the Korean economy as a whole. That was Spectrum's reporting, wasn't it?
A. Yes, again, I mean, this was an interesting point because, as I said, in what we proposed a merger was a part of it and an opportunity actually to unlock value if done fairly. And I see that they indicate they think a merger is likely as well.
Q. You had referred to Spectrum's commentary on the NPS. I promised to take you to that, Mr Smith.
Go with me back to {R/255/24} then, please. It's the bottom of page 24.
It begins about five lines down in that bottom
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paragraph. You see the sentence beginning "against this background"?
A. Yes.
Q. And Spectrum's reporting is:
"Against this background, NPS as a government institution is unlikely to pose a threat to the merger process."
Do you see that, Mr Smith?
A. I see that, yes; which I took in the context of it being a fair merger on fair terms.
Q. If you continue over to {R/255/25} then, staying on NPS, you see the paragraph three paragraphs from the bottom, beginning with the underlined text "an investment analyst"?
A. I do, yes.
Q. Take a moment to read that paragraph, if you would. (Pause)
A. Yes.
Q. Spectrum Asia is telling you that the [Redacted] family used a complex web of cross shareholdings to control SC&T. That's right, isn't it?
A. That's correct.
Q. And that there was no evidence that the NPS intended to upend that complex web?
A. Yes. They also have this shareholding of NPS in Samsung
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of things that gave us confidence to continue increasing our shareholding.
Q. Very good. We have your evidence, thank you.
Let's put the Spectrum report away and come on to a different subject, Mr Smith.
You told me yesterday --
A. May I have a minute just to look at the Spectrum report briefly ?
Q. Of course, take your time. (Pause)
A. I recall the point I had in my mind on page 24 of the report, second paragraph, second sentence, where it says:
"The fund would be against any transaction perceived as lowering the value of an investment."
That was the point I was referring to when I recall shareholder value oriented commentary in the report.
Q. Thank you, Mr Smith, that's clear.
Let's come on to a different subject. You can put the Spectrum Asia report away.
You told me yesterday that you had been corresponding with Samsung C&T who were not being helpful and engaging freely with you which caused you some concern. Those were your words yesterday. I want to explore that engagement with Samsung C&T.
A. Yes.
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SDI entirely wrong at 16.6%, and at the top, in the top paragraph, they note the role NPS played in scuttling the Samsung Heavy, Samsung Engineering merger which I remember as being very interesting.
Q. If we look at the bottom paragraph of page 25, {R/255/25} we see Spectrum's advice there that the political ramifications argue strongly against the NPS becoming more assertive regarding Samsung C&T; do you see that, Mr Smith?
A. Sorry, say that one more time?
Q. If we look at the bottom paragraph of page 25, we see Spectrum's advice there that the political ramifications argue strongly against the NPS becoming more assertive regarding Samsung C&T; do you see that, Mr Smith?
A. I see that from their source material, yes.
Q. Very good.
We saw that this report is dated March 19, 2015. Just to contextualise that, in the context of your interest in Samsung C&T, I have it right, don't I, that after this report of March 19, 2015, right through the merger vote on May 26, 2015, and indeed thereafter, Elliott continued to increase its stakes in Samsung C&T?
A. Yes. We had had a meeting with NPS prior to this which we felt was helpful, and confirmed our expectation that NPS would at least abstain, and that was one of a number
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Q. Now, by my count, in February and March of 2015 you sent five letters to the board of Samsung C&T, starting on February 4, 2015, and continuing thereafter.
I want to look at at least one of them together.
Can I invite you please to go to exhibit C-187, which is in volume 2, at tab 18, and there is a number of letters in that tab. It is at tab B therein and for the EPE operator --
A. Sorry, you said 18, did you?
Q. 18. {C/187/6} of the PDF, behind tab B in your bundle, sir.
A. Yes, behind tab B.
Q. That's right?
A. So it's dated 27 February.
Q. That's right.
A. Yes.
Q. February 27, 2015, a letter to the directors of Samsung C&T Corporation from Elliott Advisors (HK) Limited, signed by you, sir.
A. I have the letter, yes.
Q. Very good.
And if we turn to page 2 of your letter from Elliott Advisors (HK) Limited to the directors of Samsung C&T {C/187/7}, in the first paragraph on page 2, at (ii), we see that you were seeking the company's confirmation
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that no merger between SC&T and Cheil was being or would be contemplated. That's right, isn't it?
A. That's correct.
Q. Now, in fact at this point in time, at the time you sent this letter, you'd considered that SC&T's lack of response to your previous letters was surprising and disappointing. That's right, isn't it?
A. They had -- I forget whether they had written us or they had emails us to say we could meet with investor relations which, given our shareholding, was not a sufficient meeting. So we were a little frustrated and wanted to meet directors or senior members of Samsung C&T.
Q. If we go back to the first page of this letter, your February 27, 2015 letter, I think we see a reference to what you just referred {C/187/6}.
The first paragraph reference to a letter that you call the SC&T IR letter. IR means investor relations, Mr Smith?
A. That's correct.
Q. And then if we look at the second and third paragraphs there, we can see that when you did get a written response from Samsung C&T, you were complaining that all you got was a bland letter from investor relations?
A. Yes.
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stakeholders by conveying such strategies and results to investors through numerous investor relations activities."
It goes on in the third paragraph:
"Samsung's board of directors has and will continue to act in compliance with its legal duties ..."
Then jumping ahead to the final paragraph:
"We are eager to take this opportunity to bolster your confidence in Samsung, and we would like to continue productive relations with your esteemed company."
I can see why you called it a bland letter. Let's look at the signatory. It's a [Redacted]. You see that, sir?
A. I do, yes sir.
Q. And you considered this Mr [Redacted] to be from Samsung's investor relations department?
A. Yes.
Q. And again, if we contextualise this letter in the context of your investment in Samsung C&T through this period of disappointing correspondence, Elliott continued to increase its stake in Samsung C&T. That's right, isn't it?
A. Yes, we felt it was undervalued. So we continued increasing our exposure.
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Q. Let's go to look at that bland letter from investor relations or at least the first of them. It's at tab G also in this bundle?
A. Just to be clear, in (ii) of the second page of that letter, I think the information in the parenthesis, absent any material normalisation in the company's valuation, is important. I don't recall whether you mentioned that part or not.
Q. If we go to tab G of this same bundle, it's page 16 of the PDF, {C/187/16}.
This is a letter on Samsung C&T Corporation letterhead dated February 16, 2015. Do you have it, Mr Smith?
A. I have it.
Q. And it's addressed to you, sir, at Elliott Advisors (HK) Limited?
A. It is.
Q. This is the bland IR letter to which you were referring in the letter we just looked at together, isn't it?
A. It is.
Q. Let's take a brief look at it together. The second paragraph, second sentence:
"Samsung's management is striving to increase profitability by strengthening business capabilities, and is also working for the best interests of
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Q. Now, despite your disappointment in these letters, evidently they did yield a meeting to which you've already referred. That meeting with Samsung C&T took place on April 9, 2015. I have that right, don't I?
A. That's correct.
Q. Now, you describe that meeting in your second witness statement. So I'm going to ask you to pull up your second witness statement if you would, please, sir. And go to paragraph 50 of your second witness statement {D1/2/24}.
Do you have that, Mr Smith?
A. Paragraph 50 of the second one? Yes. Yes.
Q. And your first sentence of paragraph 50 of your second witness statement says:
"Having received such a clear reassurance from SC&T that they were not contemplating a merger with Cheil ..."
And you go on. Do you see that?
A. Yes, I do, yes.
Q. And the clear reassurance you're referring to appears based on paragraph 49 to refer to another letter from Samsung C&T and your meeting of April 9 with Samsung C&T?
A. May I just read 49 again?
Q. Of course. Of course. (Pause)
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A. Yes.
Q. Very good. So what I want to do with you now is test that clear reassurance against the sources you cite, namely another letter from Samsung C&T and the meeting of April 9. Let's start with the meeting of April 9. Did you take notes at that meeting, Mr Smith?
A. I did not take notes. My colleague, Mr Choi, took notes, I believe.
Q. And if we turn back to paragraph 48 of your second witness statement, you tell us that you've reviewed Mr Choi's notes and they reflect your recollection of the meeting. Do I have that right?
A. You do, yes.
Q. When did you first see Mr Choi's notes of this meeting?
A. Mr Choi wrote notes -- I think I recall they were in Korean, as he's a fluent Korean speaker as you would be aware, and he put them into an email to have them recorded and sent them to our counsel.
I saw the notes in full at that point in time.
Q. Let's look at those notes then. They are exhibit C-376. They're in volume 2 of the cross binder. {C/376/1}.
MR THOMAS: Present counsel or counsel at the time?
A. Counsel at the time. Counsel at the time. Sorry, I should have made that clear.
Did you say volume --
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retired, and I had talked to Phillip about working with us on a bilateral basis post his retirement from Citi.
Q. And in fact you'd intended that Mr Ham would be a sort of a go-between between you and SC&T?
A. I initially wanted Phillip's advice and guidance as an experienced Korean who had been in the business and in the market and knew a lot of the companies very well.
And in my experience, if one has strategic proposals of the like that we did in the form of the restructuring proposals, to present them directly to the family or very senior chairman level or CO level contacts is often better done through a local partner of sorts or a local consultant. So that was the thought I had to try with Phillip.
Q. Very good. This is the email that contains Mr Choi sending his notes of the meeting with SC&T to [Redacted]. That note starts halfway through the first page.
But I want to set it up if we go over to the third page of the email, please? {C/376/3}
A. I think Mr Choi is copied and pasted in the same note from a message he sent to counsel. That's what I think [Redacted]'s doing here.
Q. Thank you. When you say counsel again --
A. Counsel at the time.
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MR LINGARD: Excuse me. Volume 2, tab 32.
A. Okay. Every time you change binder. I don't know if this is --
Q. It's to practise gymnastics, Mr Smith.
A. Okay.
Q. Volume 2, tab 32.
A. Jesus. Sorry.
Q. It's exhibit C-376?
A. 2/32. It was in the same one. Just trying to confuse me. 32.
32, yes.
Q. I promise I'm not trying to confuse you. Do you have that document, exhibit C-376 in front of you?
A. I do, yes.
Q. It's an email from [Redacted] to your colleague, Mr Choi?
A. Yes.
Q. Now, this [Redacted] is that the Phillip Ham who previously was with Citigroup in Korea?
A. Yes, he was the -- if I recall correctly, he was the head of Citigroup's Korean business for a period of time.
Q. Any idea why he was using a [Redacted] to correspond with Mr Choi?
A. He had left Citi at this point. I believe he was
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Q. That's the Nexus Law Group?
A. No, it's Akin Gump, actually, the international law group that we were using.
Q. If we turn to the third page, then. {C/376/3}
A. Yes.
Q. We see an earlier email from your colleague, Mr Choi, to that same address, [Redacted] and it looks like Mr Choi is providing Phillip Ham with a quick summary of the meeting; do you see that?
A. Is that the part starting "Hi Phillip, the meeting went as expected"?
Q. That's exactly where I am, sir.
A. Yes.
Q. You can see indeed he said the meeting went as expected. He then describes Elliott's approach in the meeting. We see the adverbs there, courteously, subtly hinted and so on?
A. May I just read the paragraph in full?
Q. Of course. (Pause)
A. Yes, I have read that.
Q. And the second sentence, Mr Choi says in this email to Phillip Ham:
"We pressed them on the speculation re: merger with Cheil and they confirmed no such review had taken place."
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Do you see that past tense description there, sir?
A. I see -- I see that.
Q. No indication in this summary about future intention, is there, sir?
A. Not in the way Mr Choi describes it to Mr Ham. I recall the representation in question having a forward-looking element. It may be that Mr Choi is holding that element back because Phillip is not a member of Elliott and doesn't feel the need to express that to him.
Q. In the event, Mr Choi does follow up with a fuller note of the meeting to Phillip Ham at that same [Redacted] and that's the note that begins halfway through the first page of this exhibit, {C/376/1}. Go there with me if you would, please.
A. This is the same attachment --
Q. It says participants halfway through the first page; do you see that?
A. Yes.
Q. Mr Choi lists the participants in this April 9, 2015 meeting with Samsung C&T. The first participant is a [Redacted] the CFO of Samsung C&T. You see that, Mr Smith?
A. I do.
Q. And then the next listed participant is our old friend or your old friend [Redacted] from the investor
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views on valuation --
The James there is you, sir?
A. That is me.
Q. And you refer in the second line of this point 6:
"That's why Elliott had commissioned one of the Big Four accounting firms."
Do you see that, Mr Smith?
A. Sorry, could you just restate your comment, please?
Q. Yes. You refer and you're quite right to identify I had the line wrong, halfway along the first line and into the second line, you say or it is reported that you said:
"That's why Elliott had commissioned one of the Big Four accounting firms."
And it goes on; do you see that?
A. Yes.
Q. My question is simply this: did you tell the SC&T participants at this meeting which Big Four accounting firm it was?
A. We did not. And just to give you some context, I mentioned that there are many different ways to see value because I didn't want to really appear [Redacted] antagonistic in blaming management for the low share price. That was my way of raising the topic in a non-antagonistic manner.
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relations team; you see that, sir?
A. I wouldn't describe him as a friend. I have met him a small number of times, perhaps once in fact. But yes, I see it.
Q. No directors attended the meeting, Mr Smith?
A. [Redacted] I believe that's correct. The CFO, I think was not on the board at this time. But as would you recall from the Spectrum report, is described as being extremely influential and embedded within the management structure of Samsung C&T, but also with very close ties to what was called the future strategy office across the entire Chaebol. So I was, you know, of a clear impression he was a very important player.
Q. Just to make sure I have your evidence, no directors attended the meeting, Mr Smith?
A. That's correct, if you're confirming my recollection, CFO was not on the board, then that would be correct.
Q. Let's then turn to page 22 of this note from Mr Choi to the Phillip Ham email address {C/376/2}, and I'm going to point 6 of that note, sir. Perhaps you can take a minute to read point 6.
(Pause)
A. Yes.
Q. It begins:
"James agreed that there could be many different
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Q. You didn't want to appear antagonistic. We have your testimony on that. Thank you.
If we go then to the penultimate line of this point 6, it's reported that you said:
"Samsung C&T's share price is below the value of the listed investment holdings that Samsung C&T has."
Do you see that, Mr Smith?
A. Yes, I see that.
Q. And when you said "value of the listed investment holdings that Samsung C&T has", by "value" you meant the market value of those listed investment holdings; that's right, isn't it?
A. No, it's not actually. What I mean there is -- and actually this came up, I should have mentioned it, with the Nomura report. I'm referring to the value after contingent taxes that would be payable if those stakes were sold. That's the value I'm referring to.
Q. If those stakes were sold on the market at their market price, Mr Smith?
A. At their then market price, yes.
Q. And when you made this reference at the meeting on April 9 2015 with SC&T to the value of SC&T's listed investment holdings, you did not apply any holding company discount in that calculation, did you?
A. To those listed investments?
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Q. Yes.
A. No. I mean, the taxes that I mentioned, so some market participants confuse contingent taxes with holding company discounts. So I didn't apply a discount. What I was doing was just simply to illustrate with a very basic yardstick just how cheap Samsung C&T shares were. It had two core divisions that had been operating for many years which, as I mentioned, at this point the market was pricing with a negative value which didn't make any sense. You wouldn't expect that from an efficient market pricing their stock properly.
Q. Come with me then to point 9, if you would, and take a moment to read point 9 of this note. (Pause)
A. Yes.
Q. There's reference there to different merger rules in Hong Kong and Singapore and then it is reported that you said Elliott had active roles, albeit hidden from the public view, and then, and I'm quoting:
"We would be glad to help in a similar manner in Samsung Group's broader restructuring efforts ..."
to which the CFO thanked us."
My question is: at this meeting on April 9, 2015, you did not put any specific restructuring proposal to Samsung C&T, did you?
A. It was a first meeting, so we did not present anything
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Q. Very good. You then followed up with a letter and I want to be entirely fair to you and show you that letter. Its terms are clear. It's exhibit C-187. It's the same binder this time.
A. Thank you.
Q. At tab 18. And internal tab E of tab 18 {C/187/10}.
A. Internal tab E?
Q. E. This is another letter from Elliott Advisors (HK) Limited to the directors of Samsung C&T Corporation dated 16 April 2015; do you see that, Mr Smith?
A. I see the letter. I see the date, yes.
Q. And if we turn the page to page 2, {C/187/11}, for good order we see you signed the letter, Mr Smith?
A. Yes.
Q. Here we see a reference to future intention. This is what I said when I -- this is what I meant when I said I wanted to be entirely fair to you, in the second sentence of the second paragraph. Do you see that? It says:
"We also appreciate ..."
A. You're on page 1? Sorry, I was on page 2 still. Yes.
Q. "We also appreciate management's confirmation."
Do you see that?
A. Yes.
Q. Very good. Now, I want to look at Samsung C&T's
[Page 32]
specific. We had formulated some provisional proposals internally, but we didn't present them on that meeting because that wasn't what the meeting was set up for.
Q. Let's then step back to point 8 in the note and the first line there says:
"CFO stated that a merger had not and was not being reviewed by the Company."
This time Mr Choi uses past tense and now also present tense. No reference there to future intention with respect to a merger, is there, sir?
A. Not in Mr Choi's note. I think I -- you have in my witness statement how I describe it.
Q. Indeed, you describe this as a clear assurance that there would be no merger?
A. That's correct. I felt it was a clear assurance. The CFO in fact switched from Korean into English and raised a hand to create a pause in the meeting, and said it to me as you will see in my witness statement, that's as accurately as I recall it. [Redacted]
Q. And Mr Choi just chose not to record that in his note; is that your testimony, sir?
A. I -- I mean, Mr Choi, we see what Mr Choi has written here. He may have reviewed the notes prior to sending it. I don't know. But I know what I heard and it's in my testimony.
[Page 33]
response to this letter and this is the response you refer to in your witness statement. That requires us to go to exhibit C/168 which is at tab 15 in the same binder {C/168/1}.
A. Yes.
Q. This is a letter dated April 21 2015 from Samsung C&T addressed to you, sir, this time at Elliott Advisors Limited; do you see that?
A. Yes.
Q. And this looks familiar, similar in form and content to the last Samsung C&T letter we looked at. You see the first sentence:
"We thank you for your continuing interests in Samsung C&T."
The second paragraph goes on:
"We believe our April meeting was a great opportunity for us to communicate our management approach ..."
And then the third paragraph:
"We, the executive management, will make efforts to enhance value for our shareholders through sustainable growth ..."
And it goes on. Do you see that, Mr Smith?
A. Yes, I do.
Q. No reference in this letter from Samsung C&T to future
[Page 34]
mergers?
A. No, but, I mean, I think if they'd disagreed, I would have expected them to say.
Q. You can put the letter away, Mr Smith. Let's go briefly, please, to your first witness statement, and to paragraph 36 of your first witness statement {D/1/14}.
A. Yes.
Q. I'm focused on the second and third sentences of paragraph 36 of your first witness statement. You say:
"This announcement [the merger announcement] came as a complete shock to us."
And then the second sentence:
"We re-engaged with SC&T to express our astonishment at the announcement."
My question, Mr Smith, is simply whether in the light of everything that we have looked at together so far you stand by that testimony that you were completely shocked and indeed astonished at the merger announcement?
A. Yes, I was utterly, utterly astonished and shocked. I remember very clearly I was viewing a primary school with my young son that day and the trader called me and explained the announcement to me and I was very, very surprised indeed.
Q. We have your testimony, thank you.
[Page 35]
relayed privately through someone known by the [Redacted] family; that's right, isn't it?
A. Yes.
Q. And that's where the individual whose email we've already seen, the [Redacted] comes in. You intended to use that Phillip Ham to pass your proposals to someone at Goldman Sachs. I have that right, don't 1?
A. Yes. We talked to Phillip about different ways to get our -- we called them win/win proposal because there really were. I can talk to that if we -- if you bring up the actual presentation at some point.
And yes, Phillip's view was that a gentleman called David Chung who headed investment banking at Goldman Sachs was close to the family and could be helpful, and I believe he also had a discussion earlier on with the CEO [Redacted].
Q. We will come to the discussion with the CEO, but to make sure I have the intended chain for getting these proposals before the company, to make sure I have it right, it was you would pass them to the Phillip Ham to Phillip Ham who would pass them to Goldman Sachs in the hopes that Goldman Sachs would pass them to the [Redacted] family. I have that right, Mr Smith?
A. That was one of the alternatives, and we envisaged
[Page 36]
Perhaps you can turn to your second witness statement then at paragraph 61 {D1/2/29}.
A couple of general questions first. You have referred a couple of times to restructuring proposals you had for SC&T, and you describe them in your second and third --
A. You said 61, did you?
Q. 61. Indeed 60 through 63 perhaps would be a fairer way of framing for you, sir.
A. Of 2?
Q. Of 2.
A. I see 63, yes.
Q. A couple of general questions to frame the restructuring proposals you'd developed for Samsung C&T. You describe those proposals in some length in your second and third witness statements.
You emphasise, and I want to make sure I have this right, that those proposals were to be consensual vis-a-vis Samsung C&T?
A. Yes.
Q. And so I want to make sure I understand your plan to get those proposals before the company so they could consensually engage with them. I think you've confirmed this already, but let me make sure I have it. It was your position that they would be better received if
[Page 37]
possible parallel engagement with the company as well. It's a complicated group, and so we were trying to think about multiple ways of ensuring that the restructuring proposals got properly reviewed.
Q. You told me a moment ago that Mr Ham in fact met the CEO of Samsung C&T. That was in March or April of 2015. I have that right, don't I?
A. Yes, I think it's -- it's -- is it not referred to a little higher up in the witness statement?
Q. It's at paragraph 60, sir.
A. Yes. Yes.
Q. And there was no evidence of Samsung C&T having any interest in your proposals at that meeting with Mr Ham?
A. At that meeting with Mr Ham?
Q. Perhaps --
A. Yes, the CEO did not express to Mr Ham that it was something he wanted to discuss with him.
Q. Go with me then to paragraph 62 of your second witness statement, please.
A. Yes.
Q. And after that inconclusive meeting between Mr Ham and Samsung C&T, to make sure I have your evidence, it is that you asked your colleague, Mr Choi, to pass written materials to Mr Ham for Mr Ham then to pass them to Goldman Sachs. I have that right?
[Page 38]
A. Yes.
Q. And as I understand your evidence, Mr Smith, those materials got as far as Goldman Sachs but you do not know if they went from Goldman Sachs to Samsung C&T?
A. I'm not sure. I'm not sure that they went further.
Q. Very good. Thank you.
Let's move on to a different subject. Perhaps at least for you, sir, a rather more basic subject, though I fear not for me. It is how Elliott invests as a general matter.
I wonder if that can be summarised as this. What Elliott did was look for companies that traded at a discount to Elliott 's calculation of the net asset value of those companies?
A. That was an element of the investment philosophy of Elliott and the approach. It wasn't the entire approach, but an element of it. Occasionally looking for things that were extremely overvalued, but the majority, really predominantly companies that were at a discount, as you described it.
Q. And if you got that right, identified companies that were in fact trading at a discount to the NAV, and their market value increased, you could then generate returns by selling the stock on the market?
A. Typically two elements. The discount contracting and
[Page 39]
achieving that?
A. So the restructuring proposals have been mentioned many times, but within them we give actually a case study of a situation where this happened which is a corporate change in a company called the Cheung Kong group, and we point to that case study because they go through a corporate change that both removes the discount but increases the value of the whole, and that can result from a more simplified corporate structure. In this particular case, as you would be aware, the -- and it's kind of a sort of Korean thing in many ways, that the group was organised in a horizontal fashion. So company A owns company B owns company C owns company D owns company A, and my understanding was always that those structures developed because of tax reasons and the way entrepreneurs built their businesses. Wherever they had spare capital, they wanted to invest in a new business and rather than selling something, they would invest and have two of their affiliates invest in a new project, and these structures would develop.
They can be quite opaque. They do hold back value, and you will observe from the restructuring scenarios at the end of the restructuring proposal the group is very clear and vertically arranged. So you have a holding company at the top, two -- further companies and further
[Page 40]
the NAV to which the discount applied increasing. So in the best cases there would be both aspects to an investment, an ability to work with the issuer to help increase value and also the discount to that value to reduce.
Q. And you would realise that value by selling the stock on the market?
A. It depended. Often there would be a sale on the market. Sometimes you might have an element of capital return. Sometimes there might be a transaction and you would exit in a transactional format, but selling on the market was a means of crystallising gains after successful projects.
Q. I want to look with you at some of Elliott's detailed analyses, detailed calculations of Samsung C&T's net asset value. We're going to start with an analysis dated January 16, 2015. It's exhibit C-369. {C/369/1}
THE PRESIDENT: You said that there were two ways in which the value of the private company could increase. One was the increase in the discount and one was the increase in the NAV.
A. Yes.
THE PRESIDENT: How would you achieve the increase in the NAV? Would that be a consequence of the restructuring that you had proposed or would there be other ways of
[Page 41]
companies, the accounting is clearer, the ability to understand value is clearer, and in my experience that makes a difference to the market.
THE PRESIDENT: My question was precisely whether that would be something that you would try to achieve with your proposals.
A. Yes.
THE PRESIDENT: Increasing the NAV.
A. Yes, so we would suggest things that we felt had the impact of increasing value. I say for context in 2016, later on, a number of the proposals we had in mind for the Samsung Electronics part of the group, we put independently such as releasing a huge treasury holding that was uncancelled, capital return, re-organisation, a number of those steps were embraced by Samsung Electronics in that further investment, and as an illustration, you saw the market capitalisation of Samsung Electronics increase by perhaps a couple of hundred million US dollars actually.
So we would always be looking for ways to make proactive suggestions, both to increase NAV, as well as to see a significant discount to NAV reduce. Hopefully that's a helpful description.
THE PRESIDENT: Yes, it is, and I'm sorry if I interrupted your flow, Mr Lingard.
[Page 42]
MR LINGARD: Not at all, Mr President, thank you very much.
May I pick up on one point you just made, Mr Smith --
A. Of course.
Q. -- in response to the President's question, to make sure I have it. You referred to a restructuring of the Chung King group. That's --
A. Cheung Kong.
Q. Cheung Kong group. That's in Hong Kong?
A. That's the Li Ka Shing founded group which I'm sure you'll be aware of given you've spent time in Asia.
Q. Just to make sure I have it, a Hong Kong group?
A. That's correct, yes.
Q. Very good. Thank you.
Now, we were coming to exhibit C-369 which is at volume 2, tab 29 of the cross binder {C/369/1}. To set us up, this is Elliott's [Redacted]
A. 29, yes?
Q. 29. This is Elliott's NAV analysis for Samsung C&T from January 16, 2015.
A. Yes.
Q. Do you have that sheet in front of you, Mr Smith?
A. Yes.
Q. In that top block of text on the left, it says:
"Holding company name Samsung Corp."
[Page 43]
Q. Let me ask you an important but elementary question. When you talk about a discount, what you are doing in your analysis is comparing the relationship between the market price and your calculation of the sum of the parts?
A. Based on a standard methodology that we developed for a number of holding companies. Consistency is important as an element of investment and risk management.
Q. And so if the market value were 80 and your calculation of the sum of the parts were 100, your calculation of the discount would be 20%?
A. Sorry, you said 100 and 80 -- yes.
Q. And then another basic but important question. If the market value stayed the same, but your calculation of the sum of the parts went up, the result would be that the discount would appear to widen. I have that right?
A. That's correct.
Q. Let's look in a little more detail at the sum of the parts calculation here. That second block of text there under the heading "Listed Securities"; do you see that?
A. Yes, I do.
Q. And in this analysis the total value of Samsung C&T's listed securities is a little under 9.5 trillion Won. I'm reading that right, sir?
A. Yes, that's based on market prices at the time.
[Page 44]
Do you see that?
A. I do, yes.
Q. Just to make sure we're clear. This is in fact your analysis of Samsung C&T. That's right, isn't it?
A. Yes, that's correct.
Q. And then if we go one block of text thereunder, we see NAV analysis, and then the heading "Current market value of Samsung Corp"; do you see that?
A. Yes.
Q. And by "market value" there, you meant the price of the company's shares traded on the Exchange?
A. That's correct.
Q. And according to this analysis, to make sure we have it, the share price at the time was 55,700 Won?
A. That's correct.
Q. And so the market price -- excuse me, the market value of Samsung C&T or its market capitalisation, if we run down the numbers there, is 8.4 trillion Korean Won in this calculation; yes?
A. That's correct.
Q. And then the model goes on to compare that market value to something is called sum of parts. Do you see that in the next block of text, sum of parts?
A. Yes, this is a standard template that we use for many holding companies. I recognise it well.
[Page 45]
Q. And in this analysis you did not subtract from those market prices any holding company discount like, for example, we saw Nomura do yesterday?
A. That's correct, but we've taken off taxes on any gain as between these amounts and the acquisition costs for Samsung of these stakes which Nomura didn't do. So -- and I wanted to bring that up yesterday but it wasn't really time. So we hadn't applied a holding company discount, but we've taken a discount for tax.
Q. I see. And where do we see that in this model, sir?
A. It would be in -- as you would have seen the Excel, they're complicated files. It would be in another tab in the model.
Q. We will come on to look at an Excel. Unfortunately for this one we only have a PDF produced to us by the Claimant. So we're limited to the PDF.
Let's stay on this PDF for now. We can see on this analysis your analysis at this date, the total value of Samsung's listed securities exceeds the market capitalisation of the company. I have that right?
A. The total value of the listed securities after the tax effect I described is indeed higher than the market cap of Samsung Corp at that time.
Q. And that suggests, does it not, that the market could not have attributed the full value of Samsung C&T's
[Page 46]
listed securities to the market value of Samsung C&T as a whole?
A. I think it suggests at that point in time it was mispriced.
Q. Let's look at the list of those listed securities. We can see it begins with Samsung Electronics; do you see that?
A. I do, yes.
Q. That's by far and away the most valuable, at least by market price listed there, isn't it?
A. It is, yes.
Q. And the next most valuable by market price is at the bottom of the list, Samsung SDS?
A. That's right, yes.
Q. As we look along that list of listed securities held by Samsung C&T, we see that -- well, most of them, seven of them have the word "Samsung" in their name. Do you see that, sir?
A. Yes, I do.
Q. And then another doesn't have Samsung in its name, but it's Cheil; do you see that?
A. It's Cheil Worldwide, yes.
Q. And can we agree that therefore eight of these affiliated to the Samsung Group?
A. I think that's a fair assumption.
[Page 47]
that the discount hovered around 60% at that time?
A. Based on this graph, yes.
Q. We've been focusing on Samsung C&T's listed holdings, holdings of listed companies?
A. Yes.
Q. Let me step back for a moment and turn from listed investments to unlisted investments.
I want to make sure I understand where we see them in this chart. If we go back to the left of the page, under where we just were looking at listed securities, there's a heading that reads "Other non-public investments"; do you see that?
A. Yes.
Q. Is that a reference to Samsung C&T's holdings in unlisted companies?
A. Yes. I believe that's correct.
Q. And when an analyst values unlisted companies, that analyst applies his or her knowledge of the assets in question to the business or operations. That's right, isn't it?
A. So you mean for a non-listed investment or a core business?
Q. A non-listed investment.
A. Yes. I mean, it would depend to an extent on the level of disclosure, to the extent on how the non-public
[Page 48]
Q. Samsung Electronics in particular, the most valuable of these, was a key entity in the group, wasn't it?
A. That's correct.
Q. And it was important for the Samsung Group to have control over Samsung Electronics?
A. That's correct.
Q. It follows, does it not, that it was not likely that Samsung C&T would sell its shares in Samsung Electronics on the market?
A. I think that's -- that's correct, and you will no doubt recall from the structuring proposals one of the objectives that we're very clear about in those proposals is that the [Redacted] family maintains control. These stakes are not monetised and the group remains together. That was probably the most important element of our proposals.
Q. You told me yesterday that Elliott first invested in Samsung C&T in 2003. If we turn to the graph on the right side of this document we see a historical tracking of your calculation of the discount of Samsung C&T's market price as compared to your calculation of Samsung C&T's NAV. Do you see that graph?
A. I see the graph, yes.
Q. And if we look in 2003 when Elliott first invested in Samsung C&T, am I reading the graph correctly to say
[Page 49]
investment is accounted in the parent company's accounts. So some level of judgment would be required to value those investments.
Q. Some level of judgment would be required to value unlisted investments?
A. Yes.
Q. Very good. If we look again at the list of listed investments, recalling that this document is from January of 2015, we've already seen that Samsung SDS appears in that list of listed securities. You see that at the bottom there?
A. I see that, yes.
Q. And you know, don't you, that Samsung SDS had been listed only shortly before, it was listed in November of 2014; you know that, Mr Smith?
A. I recall that it was listed, yes, recently to this calculation.
Q. Very good. So what I would like to do is go back to look at your NAV analysis from that time, from November of 2014. I'm happy to say we stay in the same binder and turn to tab 27. It's exhibit C-365. {C/365/1}. You will see that inside tab 27 --
A. Sorry, on the second page of this, you do have the tax calculations.
Q. Very good.
[Page 50]
A. The next page, directly after the one you were showing me, you said you didn't have the tax information. It's here.
Q. Well, I said we don't have the Excel file?
A. Okay. Where would you like me to go next?
Q. To tab 27, please. You will see there are several sub-tabs there.
A. Okay.
Q. What I want to do is go to the macro tab, please. This is the macro tab at exhibit C-365. {C/365/1}. Do you have it, Mr Smith?
A. Yes.
Q. And it looks familiar. It's a similar format to the document we were just looking at. It's dated November 27, 2014 though. So it's from about two months earlier than the one we just looked at. Do you see the date?
A. Yes, I see the date, yes.
THE PRESIDENT: Can you tell us where the date is?
MR LINGARD: It's in the top left.
A. Sorry, we -- these spreadsheets were never in particularly large font. So apologies.
Q. It follows the same format as the one from a couple of months later that we just looked at. We can see you have the current market value of Samsung and then under
[Page 51]
original. Do you see that column, Mr Smith?
A. Yes.
Q. And in this extract the valuation, Elliott's valuation of Samsung SDS starts at September 1, 2014, and if we turn over the second page, runs through late November 2014. We're together?
A. Yes.
Q. If we start on the first page there, we see at the beginning of September your valuation of Samsung SDS is 124,059?
A. Yes.
Q. And if we let us know down the bottom of the first page, we see it's 133,496 in the middle of October; do you see that, sir?
A. 13 --
Q. The bottom of the first page?
A. Sorry. Yes.
Q. And then we continue over to the second page, stays broadly similar range. 136,478 at the top of that page, which is October 17. We keep running down that page. It goes to 190,000 at a certain point, and then if we come to November 14, do you see that?
A. Yes.
Q. On November 14 the valuation reported here of Samsung SDS jumps to 327,500; do you see that, sir?
[Page 52]
that your calculation of the sum of parts.
A. That's correct.
Q. Do you see that, Mr Smith?
A. Yes.
Q. And as was the case in the January version of this document, Samsung SDS is listed there among the listed securities held by Samsung C&T. Do you see it at the bottom of the list?
A. Yes, I do, yes. Samsung SDS, you said?
Q. Yes.
A. Yes.
Q. Now, we do have the underlying data for this one. We have the full Excel file and so what I want to do is look at the underlying analysis, your underlying valuation of Samsung SDS around the time of its listing, which we agreed was in November.
For that we need to go to the historical tab of this same file, exhibit C-365. It's a couple of tabs later in the binder, behind the historical tab.
Do you have that, Mr Smith?
A. Yes, I do.
Q. This is an extract from that historical tab. Samsung SDS's valuation as calculated by Elliott is listed in column P, second from the right. It's highlighted in yellow. I should say the highlighting is in the
[Page 53]
A. Yes.
Q. And that's because that was the day Samsung SDS was listed on the Exchange. That's right, isn't it?
A. That seems -- I don't recall the exact day it was listed but that seems logical based on what you're showing me here.
Q. And the much lower valuation the day before that, the 190,000, that was Elliott's own internal valuation because it was an unlisted holding at that point in time?
A. That's correct.
Q. And so to make sure I have it, this might require some mathematics, but the market valuation on the day of the listing was a 72% increase over Elliott's own internal valuation just the day before?
A. Yes, by listing the company -- by listing the subsidiary -- sorry, by this subsidiary getting listed, NAV increased.
Q. And in turn your calculation of the sum of the parts of Samsung C&T increased. That's right, isn't it?
A. Yes, we moved to using the listed price because we felt that in that case it was, if I recall correctly, a fair reflection of value for that particular listing.
Q. It was a fair recollection of value being a 72% increase on your own reflection of value the day before, sir?
[Page 54]
A. Yes. As I said before, when you're valuing a private company, the level of disclosure that you have is different often when it's a smaller stake in an unlisted subsidiary, and sometimes when you have a capital markets event like this, your level of information and disclosure increases, which can be helpful, cause you to re-assess your value calculation.
Q. Cause you to re-assess your value calculation.
I want to see whether the market reassessed its value calculation with respect to Samsung C&T, which of course held shares in the now listed Samsung SDS, and we can see that on the same page. It's page 2 behind the historical tab of this document, C-365. We need to go to the left of that document, and we see there the traded prices for Samsung C&T. Do you see that in that left column, the first column of prices there? {C/365/2}
A. Yes.
Q. If we go to the relevant date, let's look first at November 13, 2014, the day before Samsung SDS was listed. The market price of Samsung C&T that day was 75,400; do you see that?
A. Yes.
Q. And the market price the next day, the day Samsung SDS was listed, was 71,300; do you see that?
A. Yes, I do.
[Page 55]
A. That would have been a factor.
MR LINGARD: This may be a convenient moment to take a short break, Mr Smith, if that's acceptable to the tribunal. I'm conscious we've been going for nearly 90 minutes.
THE PRESIDENT: Let's break for 15 minutes and we will resume at 10.40.
THE WITNESS: Should I stay here or just --
THE PRESIDENT: You can go to the restroom and have a cup of coffee, it's just that you can't speak with anybody about your testimony.
THE WITNESS: Okay.
(10.23 am)
(A short break)
(10.41 am)
MR LINGARD: Mr Smith, hello again.
A. Hi there.
Q. We briefly discussed Elliott's first exposure to Samsung C&T which you told me was in 2003, and I know you were not responsible for the investment at that time, but my question is: do you know when Elliott sold that investment, the 2003 investment?
A. I do not. I wasn't involved in that project at all.
Q. Very good. What I want to do now is come on to Elliott's trading plans for the Samsung C&T investment with which you were involved.
[Page 56]
Q. A small decline?
A. Yes, I think that the [Redacted] Samsung Corp prices is becoming mispriced by the market on this day.
Q. Mispriced on the market on that day?
A. The market is undervaluing it as compared to a greater extent than it was the prior day.
Q. I see. You take up that subject in your witness statement. You can put this model away, but I will ask you, if you would, to go with me to your second witness statement and paragraph 17 thereof. {D1/2/9}.
Do you have it, Mr Smith?
A. I do, yes.
Q. You describe your first investment in Samsung C&T right around this time, November of 2014, and in the second sentence you note that you'd assessed that the shares of SC&T were trading at a significant discount, and then in the third sentence you refer to an increased discount; do you see that?
A. Yes.
Q. You don't here refer to the listing of Samsung SDS as a reason for that increase, but in fact this purportedly increased discount you describe here was due to that 70-some percent increase in valuation of Samsung SDS from yours one day to the market's the next; that's right, isn't it?
[Page 57]
I understand that those trading plans were for the purpose of guiding traders in the build-up of your position in Samsung C&T. Do I have that correct?
A. The trading plans are a template risk management tool really, that we used on very many investments. Primary use was to ensure that the valuation paid as a position was developed, was sensible and considered.
Q. Just to make sure I have your evidence on that, the trading plans were to guide traders in the build-up of your position in Samsung C&T?
A. That is a way of expressing it.
Q. Is it the right way of expressing it, Mr Smith?
A. Yes, it's a way of expressing it, I don't disagree.
Q. And those trading plans also included a component relating to the disposition of the investment being traded. That's right, isn't it?
A. The template included what was called an unwinding section. In practice it was frankly not used very often. But the way the formulae worked, it did include a disposition section.
Q. And that disposition section, I think you foreshadowed that, was the unwind plan?
A. Yes.
Q. And that unwind plan provided your traders with guidance as to when to sell a certain number of shares or swaps;
[Page 58]
that's right, isn't it?
A. Depending on the situation, and as long as the investment was passive in nature, sometimes the traders would use those unwind levels.
Q. Sometimes they would use them. A trader could sell shares or swaps without needing to seek management authorisation for that sale as long as the sale was within your trading plan guidelines. That's right, isn't it?
A. Are you reading from something I could take a look at?
Q. Just my notes, sir.
A. It's as I said, it was -- we had 20 plus so-called holding companies that we monitored and we traded the securities of. Oftentimes those investments were passive, and had defined often not particularly large size. And there was an unwind section that the traders sometimes pursued.
Q. I want to make sure I have your evidence on this. It's a point of some importance.
A trader could sell shares and swaps without needing to seek management authorisation for that sale as long as the sale was consistent with Elliott's trading plan guidelines; that's correct, isn't it?
A. Sometimes, not always.
Q. Let's just round that out by looking at your second
[Page 59]
statement. You can confirm that if you like, of course, though I represent to you that it is the January 2015 trading plan that we have in front of us.
A. Yes. Yes.
Q. I want to look first at the upper right-hand side of this document, please, exhibit C-368. Do you see the heading there "Expected Size"? {C/368/1}
A. Yes.
Q. And to make sure I'm reading the information thereunder correctly, current discount, it says, negative 42.16%; do you see that, Mr Smith?
A. I do, yes.
Q. That means at the time this plan was prepared, your calculation of the discount was 42.16%?
A. That's correct. I'd say my calculation -- I don't want you to have the impression that every single line of all these models I'm doing myself. Obviously the team is running the numbers. But the fact that we have templates in place ensure that that's accurate and that's the answer at that point in time for this particular holding company was indeed 42.16%.
Q. And then we've already discussed in general terms Elliott's unwind plans. For this January 2015 unwind plan at exhibit C-368 we see the details on the right-hand side of the sheet. Do you see the heading
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witness statement, please, Mr Smith. If we can go to paragraph 22 of that second witness statement, please. {D1/2/12}.
The first sentence there of paragraph 22 of your second witness statement says:
"The guidelines ..."
That is the trading plan guidelines:
"... nevertheless had a practical use in that they provided the trader in question with a roadmap to invest certain amounts without the need to seek management authorisation for every purchase (which can become cumbersome)."
A. Yes, I see that about investing amounts, yes.
Q. And then the second sentence is about unwinding amounts. You see that, sir?
A. I do, and I see at the end of that sentence where it says "were also frequently departed from".
Q. And we will come on to test the evidence of their being frequently departed from.
Let's look at the first of the plans. It's exhibit C-368. It's in volume 2 at tab 28. {C/368/1}.
This is Elliott 's trading plan from January 2015.
I should note for the record I don't see the date in the document, but you tell us that it is the January 2015 plan, sir, at footnote 13 of your second witness
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"Unwind Plan", Mr Smith?
A. I see the heading, yes.
Q. And then under that underlined heading, "Unwind Plan", the first column says "Unwind At"; do you see that?
A. Yes, sir. I recognise that part of the standard template.
Q. And "Unwind At" refers to the discount at which you would unwind your investment according to this model. That's right, isn't it?
A. Where the model was being used for unwinding and I think I have made my comments clear on that before, then this would be what that column was for.
Q. So this column shows discounts at which you would exit the investment. I have that right, don't I?
A. Yes. The -- the thing with these templates is even if you are just using them for building up, for appropriately dimensioning the valuations that you pay to add exposure, which is the -- typically the biggest driver of the return you make is to pay not to -- overpay at the beginning, you have to put something in for the unwind because otherwise the formulae don't work.
So there is that section. It was frequently departed from. But the points you indicate are in the template, that's correct.
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Q. Okay. Well, we have the template we have. So let's look at it together.
In that "Unwind At" column, to make sure again we're all reading it correctly, it shows at the bottom a 40% discount and then increases up that column -- excuse me, I should say decreases up that column -- in increments of 2.5%. I have that right, don't I?
A. You have that right, yes.
Q. And then if we compare the "Unwind At" column to the far right column, which is headed "Full plan cumulative unwind NAV/total NAV", let me pause to make sure we're all together, that far right column, "Full plan cumulative unwind NAV/total NAV"; yes? We're together?
A. Yes, we're together.
Q. What that column shows is the percentage of your investment that would be exited at each increment on the "Discount" column. I have that right?
A. Yes.
Q. And so, for example, if we go to the first number above zero in that far right column, we see 41.9%; do you see that, Mr Smith?
A. Yes.
Q. And what that means is this chart models Elliott exiting 41.9% of its investment in Samsung C&T when the discount is at, and for this we need to go to the far left
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The next number then is 86.9%. Again, to make sure we're reading this correctly, that shows a model of Elliott exiting 86.9% of its investment in Samsung C&T by the time the discount was at 22.5%. I'm reading the model correctly, sir?
A. You're reading the model correctly. Again, it was used for build-up in this case, not for unwind.
Q. We have your testimony. We know you don't like the trading plan, sir, but we need to study them together.
The next number then is 100%. To make sure we're reading it correctly, that 100%, if we track across, indicates that you would have exited all of your investment in Samsung C&T by the time the discount was at 20%. Again, I'm reading the model correctly, am I not?
A. You're reading the model correctly. When you say we would have exited our investment at 20%, I don't agree with that for the reasons | stated in the last answer.
Q. Well, perhaps we can once again just to clear this up and focus on the plans we have go back to your second witness statement. And to paragraph 25 of your second witness statement. I'm looking at the final sentence of paragraph 25 {D1/2/14}.
The final sentence of paragraph 25 of your second witness statement reads:
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column, is at 27.5%.
A. That is what is in this standard template. These are probably unwind levels from a prior iteration of using it. In this case that was not the focus, and the traders were -- in other words, this was an instance where we would have departed from those levels. But I see what the points say and there are other trading plans as well.
Q. Well, these are the plans we have in the record in this arbitration, sir, and we will look at all of those we have together. Let's focus on the one now in front of us from January 2015 and go to the number above 41.9% in that far right "Full plan cumulative unwind NAV" column. You see 69.2% there?
A. I see that.
Q. To make sure we are reading that correctly, what that shows is a modelling of Elliott exiting 69.2% of its investment in Samsung C&T by the time that the discount was at, and again we have to go to the far left column, 25%.
A. That's what the template shows. This template was being used for build-up rather than unwind.
Q. Yes. As I have said, it's the only unwind -- it and others are the only unwind plans we have and we will look at all of them together.
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"The 'unwind' component of the initial trading guidelines envisaged us selling out over a discount to NAV range of 27.5% to 20%."
Do you see that, sir?
A. Yes.
Q. And do you stand by that testimony?
A. The guideline envisaged that, which is different from saying that we would have done it, as I pointed you to early on, we frequently departed from per paragraph 22, the trading plans.
Q. I see. We have your testimony on that. Let's go back to the January 2015 trading plan exhibit C-368, that's the one we were looking at together: we have agreed that the model shows a 100% exit when the discount is at 20%. What I want to look at is what the model shows you would have made by way of profit from such an exit, and for that we need to go to the net P&L column in the same unwind plan section. Do you see "Net P&L"? It's bolded in a black box.
A. I see it in the model, yes. {C/368/1}.
Q. As we look in that "Net P&L" column, I'm interested in the number that appears where you have exited 100% of your investment, and the net P&L at that 100% exit is 19.96 million US dollars. Do I have that right, Mr Smith?
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A. That's what the model says.
Q. And just to make sure we have that in context, of the total size of your investment at this time, if we look to the top left of this trading plan, we see a heading that says "Analysis Parameters". Are you with me?
A. Yes.
Q. And we go there max build-up size 200 million US dollars. Do you see that, sir?
A. Yes.
Q. So to make sure I'm reading the model correctly, this model is a net profit of 19.96 million dollars on an investment size of 200 million. Do I have that right, sir?
A. Assuming the model was followed, which we've talked about, that's -- you have that correct.
Q. So a return on your investment of a little under 10%?
A. Yes, I mean, that's 19.96 divided by 200. There are other things you would take into account, but absolute return, your math is correct.
Q. Very good. We've been looking at the January 2015 plan. I said we would look at all of those we have in the record for completeness.
The next one we have is from March 5, 2015. It's exhibit C-374. It's in the same volume, volume 2, and it's at tab 31. {C/374/1}.
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the bottom with a discount of 52.5%. You see that, sir?
A. Yes.
Q. And it proceeds up that column in 2.5% increments to the discount?
A. Yes.
Q. And then let's move once again to the far right column. The column headed "Full plan cumulative unwind NAV/total NAV". Are you with me, Mr Smith?
A. I am, yes.
Q. And if we're in that far right column, the first number above zero we see is 27%?
A. Yes.
Q. To make sure I'm reading that correctly, that models exiting 27% of Elliott's stake in Samsung C&T when the discount was at 40%. For that we need to look back to the "Unwind At" column. I'm reading that correctly, sir?
A. Yes, you're also pointing out one of the -- I think inadvertently one of the shortcomings in the model is that it's not possible to have different unwind levels on the "unwind at" scale to the "add at" scale. You can't change them. They have to be fixed in the same, which illustrates quite some limitation on how the unwind is used.
Does that make sense?
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Again, let me note for the record that the document does not bear a date, but we know it is the March 2015 trading plan because that is how it is described in footnote 14 of your second witness statement, Mr Smith. You are of course welcome to confirm that, but I represent to you that it is the March trading plan as described in your second witness statement.
A. I am happy to go with your confirmation of that.
Q. And it is a familiar structure. Let's once again start at the top right of this March 5 trading plan. We see again the heading "Expected Size". You're with me, Mr Smith? The top right?
A. Yes.
Q. And current discount there is written as negative 43.88%; do you see that, sir?
A. Yes.
Q. And that means that according to Elliott's model at March 5, 2015, the discount was 43.88%. I'm reading that correctly?
A. You're reading that correctly.
Q. And the rest of the sheet follows a similar structure. Let's come to the unwind plan. It's in the middle of the page. You see the underlined heading "Unwind Plan"?
A. I see it, yes.
Q. And this time that column headed "Unwind At" starts at
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Q. It will be for others to determine whether it makes sense, sir, but we have your evidence on it.
Let's stay in the far right column headed "Full plan cumulative unwind NAV/total NAV". I was focused on the first number above zero there, 27%.
A. Yes.
Q. Let's go to the number above that, 48.2%?
A. Yes.
Q. Again, to make sure I'm reading the model correctly, this models Elliott exiting 48.2% of its stake in Samsung C&T when the discount was at 37.5%. I have that correct, don't I?
A. Say the last bit one more time. I lost my concentration.
Q. Of course. Let's look at 48.2% in the far right column headed "Full plan cumulative unwind NAV/total NAV".
A. Yes.
Q. And you see the number 48.2%.
A. Yes.
Q. And this therefore models Elliott exiting 48.2% of its stake in Samsung C&T by the time the discount was at 37.5%. I'm reading the model correctly, sir?
A. You're reading the unwind section of the model correctly. We were using this as -- for the build-up element of it.
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Q. One final question on this column of this model, then. Let's go up in that far right column to 100%. Are you with me, sir?
A. Yes.
Q. 100% under the "Full plan cumulative unwind NAV/total NAV" column, and this time this model from March 5, 2015 models Elliott exiting its entire exposure to Samsung C&T by the time the discount was at 27.5%. I'm reading the model correctly, sir?
A. You're reading the model correctly. We were using this for the build-up section.
Q. You were only using it for the build-up section. Is that your evidence, sir?
A. Yes.
Q. Perhaps I have to ask you once again to go to your second witness statement, please, this time at paragraph 37 thereof. {D1/2/19}.
I'm interested in the final part of the final sentence of paragraph 37 of your second witness statement. You are referring to a further purchase at a discount of 47.5%, and these are the words that concern me:
"... and a gradual disposition of all of the shares at various levels back to a 27.5% discount (rather than the original 20% discount)."
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profit that Elliott would have made by so doing, and again for that we need to go to the "Net P&L" column. That's in the bolded black box. Are you with me, Mr Smith?
A. I am, yes.
Q. And if we track across from the 100% exit, we see a number of 41.95 million US dollars. Are you with me, Mr Smith?
A. I see the number.
Q. Again, let's put that in context of the investment size at this time. For that let's go to the top left of this trading plan from March 5, 2015. You see the heading there "Analysis Parameters"?
A. I do, yes.
Q. If we go down there to maximum build-up size, we see it is 350 million US dollars. Are you with me?
A. I'm with you.
Q. So this time I fear we're straying once again into mathematics. This time a return of 41.95 million on an investment of 350 million, an improved return this time about 12%?
A. Yes, you actually -- you illustrate another shortcoming of the model is that the model assumes there's no change in the NAV either. But based on all of the assumptions in the model, what you're reading is correct and your
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And then there's a footnote 50 which cites exhibit C-374, that being the document we have just been looking at together.
Do you stand by the testimony in paragraph 37 of your second statement, sir?
A. Yes, I do. My team did update the trading plan guidelines in a way that did anticipate a gradual disposition, updating a trading plan is different from actually how you use it. As I said before, these templates had their limitations. If I remember correctly, it is the first time we used this template for a position of over around 200 million. You can see from the plan the formulae require you to have the same unwind levels in the "Unwind" column as the -- as you have for the "Add" columns -- the add levels in the "Add" column. It is one of a number of constraints with the models so it needs to be updated and it will reflect something or the formulae won't work. But we were using it for the build-up.
Q. Once again, these are the plans we have, so let's focus on them together.
We've been looking at the far right column in the unwind plan which we have agreed shows Elliott exiting 100% of its stake in Samsung C&T by the time the discount was at 27.5%. I want to come to look at the
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division is accurate. So the calculation you've just said seems to make sense.
Q. A 12% return, okay.
We can put this one from March 5 away. Next I want to go to your third witness statement, please, sir, which was submitted --
A. I think there is another trading plan. Do you want to talk about that one or not?
Q. I do indeed, but I need to set it up with your third witness statement, sir.
A. Okay.
Q. Which was submitted with the Claimant's Rejoinder on preliminary objections in these proceedings. And if you would turn, please, to paragraph 18 of your third witness statement. {D1/3/10}.
I'm focused on the final sentence at the bottom of page 10 in paragraph 18 of your third witness statement?
A. May I read the paragraph?
Q. Of course. (Pause)
Let me know when you're ready, sir. (Pause)
A. Yes.
Q. I'm focused on the final sentence at the bottom of page 10 in paragraph 18 of your third witness statement which was submitted with the Claimant's Rejoinder on preliminary objections. That sentence reads,
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and I quote:
"For example, with respect to our investment in SC&T, we did not update the guidelines at all after 27 March 2015."
Do you see that, sir?
A. Yes.
Q. And there's then a footnote, footnote 47, and if we go to footnote 47, you cite in support of that proposition an email from an S Nonnenmacher to you, sir, with attachments bearing that date, 27 March 2015, and it's exhibit C-684. Do you see that, sir?
A. I see that.
Q. Good. Let's go then to this exhibit C-684. It's in volume 3 of the cross binder and it's at tab 37. {C/684/1}.
Do you have it in front of you, Mr Smith?
A. Yes, I do, yes.
Q. And that is email from a Sophie Nonnenmacher to you, sir, to a Hidemoto Kawai and traders in HK dated March 27, 2015.
We're looking at the same document, Mr Smith?
A. Yes.
Q. And this is the document you cite in support of the proposition that you did not update the trading plans after March 27. If we go to the non-redacted text in
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A. Yes.
Q. Does that mean to get a stake of 5.5% when the discount is at 45%?
A. Yes, she's referring to the build-up element of the plan there, that's correct.
Q. Very good. Then let's come to the plan. As her email makes clear, in fact, two plans are attached. For our purposes I represent to you that each point I will ask you about is identical across the two plans, though you are of course, as ever, welcome to confirm that.
So we're going to look together at the top plan, the first of Ms Nonnenmacher's two attachments. Do you have it open in front of you, sir?
A. I do, yes.
Q. And it is by now a familiar structure. Let's start this time at the top left, "Analysis Parameters".
A. Yes.
Q. And if we go down there, we see max build-up size, 650. That's $650 million investment. That's what that means?
A. Yes.
Q. And then let's go to the "Unwind" portion of the plan. Go with me to the "Unwind" plan heading in the middle of the page.
A. Yes.
Q. Let's focus on the final column, "Full plan cumulative
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the email, we see that in fact Ms Nonnenmacher says, and it's the bracketed text at the end there:
"(Please find attached the 2 new trading plans.)"
Do you see that, sir?
A. Sorry, I was just -- lost my concentration. Could you say that again?
Q. This is the document you cite in support of the proposition that you did not update the trading plans after March 27.
A. Yes.
Q. If we go to the non-redacted text in the email, we see that in fact Ms Nonnenmacher says, and it's the bracketed text at the end there:
"(Please find attached the 2 new trading plans)."
Do you see that, sir?
A. I see that, yes.
Q. And then if we go to the text above that bracketed text, in fact the first line next to "Samsung", we see Ms Nonnenmacher telling you:
"Trading Plan Max size has been increased up to 650m ..."
That means 650 million US dollars?
A. That's correct.
Q. And then she says:
"... to get 5.5% at-45%."
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unwind NAV/total NAV". Are you with me?
A. I am, yes.
Q. And we see 100%?
A. Yes.
Q. In the top two rows. This iteration of Elliott's trading plan models all of your investment in Samsung C&T being exited this time by the time the discount was at 20%. I'm reading that correctly, sir?
A. That's what the model says. You are illustrating again a limitation in the model because it couldn't be unwound in this model at less than 17.5, as you will see, there just aren't the rows to cater to that. But you're reading --
Q. There aren't the rows cater to that?
A. Yes.
Q. I see. But I'm reading the model correctly?
A. You're reading the model correctly, yes.
Q. Very good. In this model from March 27, 2015, this time we see a much larger return. The number is 162.18 in the "Net P&L" column. You're with me?
A. I am with you, yes.
Q. And that's a much larger rate of return because, on the build-up side, you've invested much more at the high discount. I have that right, sir?
A. It's a higher rate of -- rate of return or quantum of
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return?
Q. Both, sir.
A. It's a higher quantum of return because the position is bigger, yes.
Q. Bigger at a moment of investment when the discount is larger.
A. The rate of return would be higher -- I think I'm correct in saying -- by virtue of the discount being wider rather than the size being bigger. But --
Q. That was my question, sir.
A. You are clearly an intelligent chap, so I'm sure it's right.
Q. That was my question. So I'm sure we are agreed that the rate of return is higher by virtue of the discount being wider when you make that investment?
A. Based on what the plan says, but I don't want to be repetitious and boring, but we were using the plans for the build-up side.
Q. We have your testimony on that.
So this one shows an exit of all of the investment by the time the discount is at 20%. Are you aware, sir, of any contemporaneous model prepared by Elliott showing an exit at a lower discount than that?
A. I'm only aware of these three models that we have talked about.
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automatically.
A. Pretty accurately. I would have a very frequent and dynamic dialogue with the traders. So I would be aware and involved, but they were followed pretty accurately.
MR GARIBALDI: All right. Now, if these models were not intended to be followed automatically for the unwind portion of it, and this is the way I understand your testimony, if they were not, who would make the changes? Who would have the authority to override the models and to tell the traders, no, don't apply the model, we are on a different mode, so to speak, and the plan is going to be different?
A. That was me.
MR GARIBALDI: You had the sole authority to do that?
A. Yes.
MR GARIBALDI: Thank you.
THE PRESIDENT: Redirect?
MR PARTASIDES: Thank you, Mr President.
Re-examination by MR PARTASIDES
MR PARTASIDES: Mr Smith, thank you for your time and attention. Before you close the tab that was open, so we were looking at tab 37 -- this is exhibit C-684, volume 3, tab 37 -- {C/684/2}, I believe you described this as the third and final trading plan produced on 27 March 2015. Have I understood your evidence
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MR LINGARD: Very good, so am I, sir.
That brings me to the end of my questions for today.
I say for today advisedly. This is an unusual way to end a cross-examination. You may be aware, sir, that we have been promised the production of some additional documents. As to those, I need to reserve my right to re-call you to discuss them if we need to clarify anything on them once we have them. So we may need to speak once again. But for today, I simply thank you for your time, and Mr President, I have no further questions.
Questions from THE TRIBUNAL
MR GARIBALDI: Mr Smith, we have spent a lot of time on these trading models. The tribunal will have to assess the significance of these models for purposes of the dispute that we have before us.
Now, my question has to do with the following. Your testimony is that these models, which changed over time, were not automatically followed, at least as far as the unwinding of the investment is concerned. Did I understand your testimony correctly?
A. That's correct. They were a guide primarily used for the build-up of a position.
MR GARIBALDI: Fine. Now, would you say that for the build-up of a position they were followed strictly or
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correctly?
A. That's correct.
Q. Could you explain to the tribunal the events that led to your team not producing any more trading guidelines such as these after 27 March?
A. After 27 March we had more -- made more progress in our engagement with the company. We met with them on 9 April. We felt there was a strong possibility of consensual engagement, and therefore we increased significantly the intensity with which we worked on our restructuring proposals, and that gave me confidence that the -- what could be achieved in terms of discount compression, but NAV expansion was very attractive and the trading plans ceased to be useful by virtue of that.
Q. Thank you.
Now, you've mentioned your restructuring plans a number of times. You were actually promised yesterday -- page 189, line 1 of the transcript -- that you would be taken to them. You weren't taken to them. We've looked -- we haven't found them in the two volumes before you. But I'm going to take you to them, as you referred to them a number of times, including in your response to the President's question, and in order to make sure that we all have a hard copy, I'll ask for that to be circulated now. It's exhibit C-380 for the
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record.
A. May I put these binders on the floor?
Q. You can close them at least. We will be coming back to a couple of the documents. (Pause)
MR LINGARD: I'm sorry to interrupt. Counsel, can I ask you for the transcript reference from yesterday again?
MR PARTASIDES: Yes, {Day2/189:1}. Your statement, Mr Lingard:
"Question: We have your testimony ..."
The testimony in question was the reference to the restructuring scenarios which the witness said would help him answer your question, and you said:
"Question: We have your testimony and we will come on to the restructuring plans in due course."
MR LINGARD: In that case I have the transcript now in front of me. Thank you for repeating the reference, Mr Partasides. In that case, I'm afraid I need to object to the presentation of this document to the witness. I did not take the witness to it. We did discuss the restructuring plans and the plan for getting these plans in Samsung C&T, that was a substantial part of our engagement this morning. I did not take the witness to this document. Therefore I object to the question on redirect.
MR PARTASIDES: Mr President, if I might, if you need
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was in fact opened when there were questions about Mr Ham and how he communicated the restructuring plans to Goldman Sachs and then to Samsung, and the tribunal also put questions on the topic. So we will allow these questions, but within reason. If you could proceed with caution. If there are -- if there are any questions on the Respondent's side on follow-up, you will be allowed to put questions.
MR LINGARD: Thank you, Mr President.
THE PRESIDENT: If there are any.
MR PARTASIDES: Indeed, Mr President. We would expect that and would welcome any further questions from those opposite.
I should say that the witness took the opportunity to have a two-minute impromptu comfort break. I'm sure he will be returning. (Pause)
THE PRESIDENT: Yes, please proceed.
MR PARTASIDES: Thank you, Mr Smith. You missed some moments when -- not at all, thank you indeed. We will be asking you very brief questions about your restructuring plan. I hope it can be put up on the screen again. The reference is C-380. I hope you have a hard copy in front of you {C/380/1}. I would like you to turn to slide 8 of the presentation. It's a multipage presentation. {C/380/8}.
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a response from me?
THE PRESIDENT: Do you want to comment on that? Or you leave it for the tribunal to decide?
MR PARTASIDES: If the tribunal needs me to comment, then I certainly would like to comment on that.
THE PRESIDENT: Okay, please.
MR PARTASIDES: Thank you. I'm not sure that I'm being -- yes.
Mr Chairman, members of the tribunal, this is the witness who authored the restructuring plan. He has referred to it repeatedly during cross-examination in response to a number of questions that were asked to him. He was promised that he would be taken to the restructuring plans. In response to the question that you asked this witness, he referred to the restructuring plans.
I think it is both notable that counsel opposite do not want you to hear this witness's explanation of the restructuring plan and it is also objectionable that they do not allow this witness the opportunity to comment on that.
Thank you.
THE PRESIDENT: Okay. The tribunal will withdraw and will come back in a few minutes. (Pause)
So the tribunal's position is this one. The door
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Could I ask you to put your microphone on as well?
A. Sorry. Sorry. I have slide 8 in front of me.
Q. Now, this might be the most convenient slide for you briefly to explain the restructuring proposal that you and your team put together, and I would ask you to do so keeping in mind the question that the President of the tribunal put to you about the aim of both reducing discount and also increasing net asset value.
A. Yes. So the proposal we had in mind, I think it actually may not -- I apologise, may not be the best slide to illustrate it. I would perhaps refer to the front, and what you see -- it's hard to disagree, this is an extremely complicated opaque corporate structure. That's what we were starting with or what the group had, and then if you turn to slide 14 {C/380/14}, you see a somewhat clearer organisational structure which is vertically arranged with the [Redacted] family having a 28.3% stake at the top. To refer back now to slide 8 {C/380/8}, the steps pursuant to which that change in organisational structure to a clearer more transparent structure are listed here. They were four.
The first was a merger of Samsung Electronics and Samsung SDS which Mr Lingard referred to earlier on.
The second was a demerger transaction that we envisaged to create a holding company above Samsung
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electronic's operating assets. There was a large treasury share stake, uncancelled treasury share stake at Samsung Electronics through this step that would become a holding in that subsidiary.
And I think importantly step 3 was a merger between three companies, Cheil Industries, Samsung C&T, and the holding company created from the second step to create a sort of top holding company, which step we envisaged to happen on the basis of effectively net asset value. So I think that's worth noting.
Then a split of that consolidated company into two further companies, one to hold the financial assets of the Samsung Group, the other to hold the non-financial assets of the group.
The importance of that was that there were regulations that required a disentangling of financial and non-financial stakes. And so we felt this was -- and intended to present it -- a clear path to improving transparency, simplifying the structure, maintaining control and succession for the [Redacted] family, and it also would have had the potential for other things like capital return as part of it.
Sorry if that was a bit long, but that's a high level description of the restructuring re-organisation proposal that we passed through Phillip Ham to
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associated with the value rigid merger regulations in Korea would become self-fulfilling and not an issue. I hope that's a helpful answer.
MR PARTASIDES: Thank you. Mr President, I only have one more question about this slide deck, if I may. I hope that stays within the limits that you've set.
If I could ask you to turn to slide 5 of the deck, Mr Smith {C/380/5}, we see there a description of a case study that I think you referred to in response either to a question from Mr Lingard or from the President.
The case study is the CK Hutchison case study, the Hong Kong group, to be clear.
Could you explain to us why you presented this case study and what this case study is showing?
A. We presented this case study or included it in the slides for several reasons. (a) it was very recent; (b) it was a transaction put forward by an extremely well-respected and renowned inordinately successful businessman and business group in Li Ka Shing, and it had the effect of creating a win/win outcome in that the valuations of both shares re-rated upwards significantly. I forget the exact amount. It might have been around 15% in response to this transaction being announced. So we felt it was a case study that the [Redacted] family and the company might identify with, it
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Goldman Sachs and we intended to present to the company and the family.
Q. It was put to you yesterday, transcript reference {Day2/198:6} to {Day2/198:14} that by February of 2015 Elliott considered that there was a real possibility that the family might attempt to merge Samsung C&T with Cheil. And your answer was:
"It was something that we were aware of and, as with any potential merger or other element of restructuring, it was always our assumption that whatever was done would be done fairly."
Could you explain to the tribunal your view on how this would have been a fairer merger, Mr Smith?
A. Yes. The -- this would have been a fairer merger because we intended for that three-way merger, of which two of the three companies were Cheil and SC&T, would happen on a basis of fair value of net asset value for each of those companies, and therefore the output for each shareholder would be fair.
What I had in mind to -- given the value rigid merger rules in Korea, what I had in mind as a way to achieve that was that if we could get the company to agree with this proposal, they might announce that was their intention. In my experience that would cause share prices to then move to those terms, and any issues
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being so recent and such a well regarded, well reputed group.
Q. Thank you. Let's move on to other documents that you were taken to, Mr Smith.
You were taken to for some time the IRC reports.
You were taken to two of the IRC reports. So I'm going to take you to both of them.
The first one for the record is C/151. You will find it in volume 2, tab 12. {C/151/1}.
A. I have the document.
Q. You were taken to some selected extracts from this document and a subsequent version of it, Mr Smith. I'm going to take you to some other selected extracts.
You said yesterday in response to a question from Mr Lingard that as a result of reading these reports, you were "encouraged that there were procedures in place and that the NPS would be focused on shareholder value".
Do you remember saying that?
A. I recall saying that.
Q. That's {Day2/213:23} to {Day2/214:7} of yesterday's transcript. Let me ask you to turn to page 3 of the IRC report, the summary.
A. I have the page.
Q. {C/151/3}. Let me ask you to turn to the fifth bullet down. It's the third up from the bottom.
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A. Yes.
Q. "Safest way for the fund to minimise possible legal responsibilities is making decisions based on the principles."
We see those principles referred to in the fourth bullet point just above, stability, profitability, public benefit and welfare and liquidity. And then that bullet point goes on to read:
"In terms of profitability, the fund focuses on shareholders' value after merger -- difference between appraisal right execution price -- market price during the execution period. Of the two, the latter one is clearer."
This reference to the fund's rules, Mr Smith, was -- this is an example of the way in which this report encouraged you to believe that the NPS's procedures would be followed?
A. Yes, it encouraged me that they would be focused on shareholder value. They would pursue their procedures. Korea is a developed -- had been an OEC jurisdiction for nearly ten years, and especially in the light of [Redacted] I remember the precedent transaction of Samsung Engineering and Samsung Heavy, and I recall us looking at the shareholder register and reaching the view that they would at least abstain, and if they would
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(Pause)
A. I have read the paragraph.
Q. If I could ask you to read the second paragraph under that sub-heading. (Pause)
A. Yes, I have read it.
Q. Again, is this another example of why these reports encouraged you to believe that the NPS had procedures in place and would be focused on shareholder value?
A. Yes; absolutely.
Q. One final reference in these reports, Mr Smith. It's page 12 {C/166/12} which is 8 of the -- yes, apologies, page 8 of the internal pagination, page 12 of the hearing bundle Opus reference.
If I could ask you to focus on the subheading near the top of the page called "Roles and Responsibilities". Are you with me?
A. Yes, I am.
Q. And if we read the paragraph that follows that sub-heading, we see a reference to the different matters that are decided on by the Council of Experts on the exercise of voting rights.
A. Yes.
Q. We see item 3:
"Matters requested by the chairpersons of the fund management committee."
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abstain, the merger wouldn't go through, and I believe if you were to review the voting statistics for the actual EGM, had they just abstained, the merger wouldn't have gone through. So that ended up being a correct assumption.
Q. Let's look at the other version of the IRC report that you were taken to. You will find this at tab 14 of the same volume. This is exhibit {C/166/1} for the record.
A. I have the document.
Q. Let me ask you to turn to page 17 {C/166/17}. Just take a moment to familiarise yourself with this?
A. Sorry, that's a different page 17 to me. You said tab 14?
Q. Yes, tab 14. C-166, page 17. You're right. It's not quite the same page as I'm seeing in front of me.
A. I don't those codes on the bottom right. I have the paginated number.
Q. It's page -- let's use the hearing bundle reference because the correct page is the one that we're seeing on the screen.
A. Yes.
Q. And it is page 13 of the hard version, members of the tribunal. {C/166/17}.
If I could ask you to read to yourself the paragraph under the sub-heading near the top of that page.
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Do you see that?
A. I do.
Q. If we look separately at item 5:
"Matters that are recognised as necessary by the chairperson of the Council of Experts on the Exercise of Voting Rights."
Do you see that?
A. I see that.
Q. You referred yesterday to a reference in these reports to the fact that the chairman of the Experts Voting Committee could require a reference to his committee. Is this the reference that you were recalling?
A. Yes.
Q. We can put that document away.
One final document for you, Mr Smith. You will find this at volume 3, tab 56. It's exhibit R-255. {R/255/1}. The Spectrum Asia report. So that's tab 56 of your bundle?
A. Yes. I have it.
Q. The Spectrum Asia report.
Do you remember being asked some questions about this this morning?
A. I do.
Q. Now, this addresses the NPS at page 24 and 25 {R/255/24-25}. I'm going to ask you to turn to those
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pages.
A. I have them.
Q. You were taken to some sections of the passage here described as political analysis by -- at least -- at least gathered by Spectrum. I'm going to ask you to focus on a paragraph that you drew attention to during your cross-examination which is the paragraph at the top of page 25. Take a moment to remind yourself of it. {R/255/25}. (Pause).
A. Yes.
Q. You mentioned the role that the NPS played in scuttling the Samsung Heavy Industries merger and you said that this was very interesting to you.
A. Yes.
Q. Could you explain to the tribunal why that was very interesting to you in the context of this possible [Redacted] merger?
A. It was a very recent example of NPS taking a position that was not in support of the Samsung Group. They abstained on this one because they felt value wasn't right. And it made me think if they were to abstain in this case, we conclude, as I indicated earlier that at least would be sufficient for a merger on unfair terms between Samsung C&T and Cheil to be defeated and in fact I had the view they would actually vote against. But it
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That may have been what Mr Partasides was just about to say, so I apologise for the interruption, but I note that.
MR PARTASIDES: It was indeed, Mr Lingard. What I was about to say, and I was also going to say that that was why I was not going to ask any questions about it. But I did want to ask one question and that is: could you explain to the tribunal why it is that you described your meeting with the NPS of 18 March in your witness statement rather than the Spectrum report that was prepared on the 19 March?
A. Well, the meeting with NPS was directly with NPS. And the Spectrum report was source material from various different sources and, as you see in my testimony, the meeting was extremely instructive. I think that answers the question.
MR PARTASIDES: Thank you. I promised not to ask a question about the paragraph, but, members of the tribunal, you have the paragraph. It wasn't tested on examination. And with that, I conclude my re-direct examination.
THE PRESIDENT: Thank you, Mr Partasides. Mr Lingard, any questions on re-cross?
Further cross-examination by MR LINGARD
MR LINGARD: Mr President, thank you. I have just one or two, if I may. They are on the so-called restructuring
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was a very helpful recent example, precedent, of them acting in that way.
Q. Let's go back to the cover page of the Spectrum Asia report {R/255/1}. I think you explained to arbitrator Mr Garibaldi that what Spectrum was doing here was amassing information that they were gathering from various sources. Have I understood that correctly?
A. That's correct.
Q. And I think you also said on examination that this would have been one of the inputs that you would have taken into account; is that also --
A. That's correct.
Q. Let's focus on the date of this report. It's 19 March 2015.
A. Yes.
Q. Do you remember who you met on 18 March 2015 in Seoul?
A. We met with NPS in Seoul on 18 March.
Q. Let's turn to your first witness statement, Mr Smith. {D1/1/1. If we could turn together to paragraph 28 {D1/1/11}.
Now, this was not --
MR LINGARD: Mr President, I'm sorry. I need to note at least -- I fear I cut off my friend, but I need to note that I did not ask Mr Smith any questions about this subject.
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proposal that counsel opposite took you to, Mr Smith. That's exhibit C-380. It's the document headed "Samsung Group Organisation Chart". Counsel opposite handed up a loose copy of it. Do you have it in front of you?
A. I do.
Q. {C/380/1}.
Just one or two questions on that document, sir.
You told me earlier in our discussion today, and I'll offer the draft transcript reference, though of course it will be different in the final transcript. It's [draft] page 36 at line 24, that you were not sure that written materials went further than Goldman Sachs. You were not sure that written materials got provided to Samsung C&T.
Those written materials that you there referred to were this document, C-380; is that right, sir?
A. That's my recollection, that's correct.
Q. Very good. And counsel opposite took you to a case study in this so-called restructuring proposal at slide 5 involving CK Hutch {C/380/5}. Do you recall that, sir?
A. Yes, I do.
Q. And we agreed that's a Hong Kong group. My question is: was there any case study in this so-called restructuring proposal involving another Chaebol?
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A. In this presentation there's no case study. There are cases of groups simplifying their structure, but they weren't in this presentation.
MR LINGARD: Very good. Thank you, Mr Smith. Nothing further for now. Mr President, thank you.
THE PRESIDENT: Thank you, Mr Lingard. There will be questions from the tribunal. Mr Thomas.
Further questions from THE TRIBUNAL
MR THOMAS: Thank you.
Most of these questions are very, very simple and I apologise in advance if they seem completely basic. But you're the only financial expert that I'm going to be able to have a chance --
A. Of course.
MR THOMAS: By that I mean someone who actually practises in the area that I'm going to be able to ask these questions of. So they're specifically about the organisation of Elliott and your role and responsibility to begin with.
You partially answered my questions when you responded to my colleague, Mr Garibaldi, that you had control over the trading plans with respect to SC&T; that's correct?
A. Yes.
MR THOMAS: Can you just step back and explain to me the way
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A. Yes, I would generally instruct the head trader and he had two or three traders that supported him. But that's how it worked.
MR THOMAS: All right.
The next question is I'd like to understand a little bit more about the swaps. Were the swaps -- were they over-the-counter transactions or is there an exchange for swaps? How do you purchase a swap?
A. A swap is, as you're probably aware, it's a contract with a counterparty, typically an investment bank, that would be transacted by -- I wouldn't do the transactions on the phone myself, but would be transacted on the phone with the broker or bank concerned, and the swap would be entered into and the settlement documentation of that would be taken care of by the back office at Elliott which was primarily in New York, but they had a representative -- some -- a small number of representatives in Hong Kong on site.
MR THOMAS: Are they a standard form contract or did they vary by --
A. They generally followed standard form documentation. It's not an area of expertise of mine, it would be more focused on by the back office, but there is, I believe, an organisation called ISDA that has standard form documentation and any adjustments to it, I believe, can
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in which you related to your superiors in the head office in New York?
A. Yes. My reporting line was to a gentleman in New York called Jon Pollock. I would generally speak to him once, twice a week for no more than typically half an hour at a time. Those updates were very high level in nature and I was afforded the autonomy really to make the investments and take the projects forward on that basis.
MR THOMAS: So would it be correct to characterise this as your project?
A. That's correct, yes.
MR THOMAS: I saw in a reference to the email traffic Ms Nonnenmacher that there was a reference to the traders. Were there traders located in your office in Hong Kong? Where were the traders situated?
A. Yes, we had traders in our office. They reported to me on a local level as I was the responsible officer for the Elliott Hong Kong business from a regulatory perspective as the managing director and the only board member on site.
MR THOMAS: And do I take it from that that you would either give direct instructions or you would instruct some member of your team to instruct the traders on, for example, deviations from trading plans.
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be in a rider or addendum to a standard form contract.
MR THOMAS: Now, when you buy a number of swaps, do you know who the counterparty is? Do you know who owns the shares that the swap references?
A. You don't specifically know who owns the shares that the swap references, but practically speaking, the counterparty to the swap, so if I were Elliott and you were, let's say, Goldman Sachs, you -- I would be -- I would have long economic risk and return exposure. Therefore -- sorry, you would have short economic risk and return exposure. So I would ordinarily expect you to risk manage that by buying shares, to offset your risk. Otherwise you would just be short to me. So I would expect that typically the counterparty to the swap would also have a share position.
MR THOMAS: Okay. How liquid are the swaps?
A. Very liquid. They are as liquid as the shares, if not more so.
MR THOMAS: So you could pick up the phone and get rid of them?
A. Yes.
MR THOMAS: Can we take -- I want to take you to your second witness statement and it's paragraph 6. {D1/2/3}.
(ii), it's on the top of page 3 of your second witness statement {D1/2/4}.
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A. Yes.
MR THOMAS: It just concerns the clarification there that the swaps in relation to SC&T were held by different entities, and you list the three entities as being Elliott International Limited Partnership, EALP and Liverpool.
I guess the question I had there was: did you make the decision as to who would purchase the swaps as among these different entities?
A. No. This split would be relatively standard and how swaps were split, indeed swaps versus cash oftentimes was really a back office mechanism, to be honest. I wouldn't -- if your question is I wouldn't say let's split this 80/20 or 70/30. I would just instruct the purchase of the aggregate amount of swaps.
MR THOMAS: Okay. Just to make sure that I have this clear, let's say you buy a million swaps there. Is there a formula -- essentially there's a preset formula within the Elliott Group as to how those would be allocated, the 1 million swaps?
A. Yes.
MR THOMAS: And it is not something that you would --
A. No.
MR THOMAS: I see. That's very helpful, thank you.
Can you tell me a little bit about the Cheil swaps?
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history, and we've used the trading plans really for those -- predominantly for those conglomerate holding company type structures. As a recently listed company we -- which we just didn't take a trading plan approach with that one. It was very much something we did for around 20 companies, and definitely not for every position that we had in the portfolio.
MR THOMAS: Okay, thank you. Let me just check my notes, just to make sure that I've got everything.
Sorry, one is just a minor issue of nomenclature, but I want to make sure I understood what you were meaning?
A. Of course.
MR THOMAS: You had extensive discussion with Mr Lingard about the Phillip Ham relationship and the possibility of trying to get your proposal to the [Redacted] family through Goldman Sachs, and you used the -- I want to make sure I understand what your term was, but you used the term parallel engagement". Is that a euphemism for trying multiple routes to try to get the plan to the same -- to the ultimate object?
A. Not really. In my experience with these Asian business groups, where there's a significant shareholder and then there are the professionals that, that having two conversations can be helpful because oftentimes you need
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When was the initiative taken to take a position on Cheil?
A. So we had short swap exposure in Cheil. I believe that began in the middle of - in the middle -- in middle of May and, as you would be aware from the materials, it was a company we thought was extremely overvalued, and it was -- yes, it was middle of May that it started.
MR THOMAS: And would you have prepared trading plans similar to the ones that we have looked at today for SC&T?
A. I don't believe we did.
MR THOMAS: Can you tell me why? Why would you have trading plans for one but not for -- is it because you were in a swap position originally -- with SC&T.
A. Yes. So the trading plan, whether it was swap or stock, wouldn't impact whether -- the trading plan -- they were separate things. Sorry.
The trading plans, as you may be aware, in Asia in particular, there are quite a lot of these big business groups where you have a listed parent, listed subsidiaries, and lots of sort of complicated elements of value.
And some years before these events we developed the trading plans really for those types of companies. Typically where there's a history, quite a long trading
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the professionals to be in agreement with the concept as well as the family to be in agreement with the concept. So that's what I was referring to.
MR THOMAS: So do I infer from that that there was an alternative to the route through Goldman Sachs that you were exploring as well?
A. So our intention was both through Goldman Sachs and Phillip for the concepts to be presented ideally to the senior members of the family, and then on our side directly it was our intention pursuant really to the April 20 letter that we got back from Samsung C&T to present them to the professionals ourselves.
MR THOMAS: I see, okay. Thank you very much.
A. Okay.
THE PRESIDENT: A couple of further questions, if you could bear with us.
A. Of course.
THE PRESIDENT: You testified earlier today, and you explain in your witness statements, how your initial investments were in the SC&T were passive and then you adopted a more active approach.
A. Yes.
THE PRESIDENT: Do you recall that?
Setting aside this particular case of SC&T and Cheil, was this a sort of a methodology or more general
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approach that you adopted in investing passive versus active?
A. Yes. It was a consistent approach. If I would just perhaps touch on the investment philosophy a little bit at Elliott, as I think Mr Lingard mentioned, and it's in the witness statements, the approach is to identify discount to intrinsic value, and then, you know, there's a certain size or type of investment that could be made on that basis.
But ideally we all know in the world that many things can trade at a discount. Whether they -- that discount contracts or whether the NAV, it's a discount to expands, it can take longer if it's left to the market.
So it was very often the case in certain investments that we would think what can we do to cause value to increase or to cause the discount to decrease.
Some examples are mentioned in the witness statement. A good one would be BHP Billiton which is an investment I ran, where we identified undervaluation in the company, but also a number of things the company could do which it subsequently did do which would enhance and improve value.
I'm talking about things like capital return. In that case they sold an oil and gas division. In fact
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as between the Samsung C&T securities and the NAV to be removed.
THE PRESIDENT: And making these proposals, restructuring proposals, was one of the means when you switched from passive to active?
A. Yes.
THE PRESIDENT: Were there any others?
A. One of the -- the other one was after the merger was announced, taking steps to defeat the merger, because we felt if the merger were defeated, the discount would significantly contract and actually the NAV would expand. You will probably be aware that in the period after the merger was approved to take the biggest value driver of Samsung C&T, Samsung Electronics, the stock came down meaningfully, and, yes, that was another example, is to defeat the unfair merger as a means to restore value and create a path to enhance value.
THE PRESIDENT: This decision to switch from more passive to more active approach, was that a decision you would take in your office?
A. Yes. Yes.
THE PRESIDENT: You wouldn't consult anybody in New York?
A. I would -- in the conversations I described with Mr Pollock in New York, I would inform him, and to -- for something like the restructuring proposals, whilst
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they sold two oil and gas divisions -- the second one is being sold now -- and they amended an inefficient group structure that they have.
Another example would be actually [Redacted] Samsung Electronics. So starting in October 2016 we actually took elements of this proposal and built upon them to present an active value enhancement initiative to the Samsung Electronics group.
So it was a consistent theme. Find the discounts and think of ways to actively promote, ideally consensually, to actively promote and work to increase value.
So that was a consistent element of the investment philosophy that we were pursuing across many positions.
THE PRESIDENT: So roughly speaking, when you had a passive approach, it would be basically trading based on your analysis of what the intrinsic value of the company would be?
A. Yes. It was more, you know, based on the historical levels and rates of change in discounts. But then if you did reach that point in an investment, and this was an example, where you thought: there's something we can do here to make a difference, in this case the restructuring proposals, that would have the benefit of increasing NAV and causing that distortion, mispricing,
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they were a private initiative, I would let him know. I wouldn't seek his approval.
For something more vocal, and more public, like the initiative to defeat the merger, I would inform him and discuss it with him with a number of other folks and proceed based on the outcome of those discussions. Because at that point it's public and there's a lot more focus.
THE PRESIDENT: But the proposals for restructuring, they would be developed in your office?
A. Yes, fully in my office.
THE PRESIDENT: Reviewed and approved in New York?
A. Reviewed. I wouldn't say approved. Reviewed. I was free to put them forward without a distinct approval.
THE PRESIDENT: Thank you.
MR GARIBALDI: Mr Smith, I would like to hear much more about the Cheil investment. Elliott 's investment in Cheil. But we have a procedural problem here. That is that some new evidence has been introduced. We haven't seen it. At least I have not seen it. And we expect that it is going to be the subject of discussion by the experts.
It seems to me that your testimony about that is crucial, or at least let's say it's important.
THE PRESIDENT: I think Mr Lingard has reserved the right to
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call Mr [Redacted].
MR GARIBALDI: Exactly. I'm getting to that point, that Mr Lingard has reserved his right to call you back, and I for one would like to have that opportunity to hear you after all this new evidence has been debated and to see what you have to say about that.
So I cannot decide for the tribunal, but my interest would be in hearing you again about that topic.
A. If it's helpful to the tribunal, I'm obviously very open to help.
MR GARIBALDI: Therefore, I'm not going to ask you a question now, but I will reserve my interest for a later opportunity. Thanks.
A. Thank you.
THE PRESIDENT: That raises a further question which is if Mr Smith is in fact called back, what is the parties' position whether he should remain sequestered until there is a decision whether or not he will be called back? Respondent?
MR TURNER: Sir, insofar as Mr Smith's evidence on the basis of his three witness statements has now been closed, then there is no further sequestration needed for him in respect of that evidence.
I don't know how it is going to be done if there are further documents that those documents be introduced
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respect of which we would cross-examine him.
I don't know what my learned friend's intention is in that respect, but I think we can release Mr Smith so far as the contents of his three existing witness statements are concerned.
THE PRESIDENT: Mr Partasides?
MR PARTASIDES: Thank you, Mr President. Let me deal with the issue of sequestration first, and I don't think there's a difference between us, but let me state my position and if there is a difference, it can be at least revealed.
The witness has not begun any cross-examination on the question of the Cheil short swaps. The normal rules of sequestration typically kick in when an examination on a subject begins. I don't think there's a difference between us, but my understanding on that basis is that there would be no sequestration here.
On the question of the underlying evidence, and the fact that no questions have been put to Mr Smith at all on the Cheil positions, let me note a few points by way of recollection.
Firstly, there have been for over a year on the record of this arbitration records provided to those opposite of a number of Cheil swaps. Those have been on the record since document production in early 2020.
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into evidence. That may be the subject of discussion between the parties and then it may be that the tribunal will have to make decisions. For example, if -- we've received the spreadsheet that I referred to yesterday morning. We understand, and perhaps there will be an update from my learned friend about the timing of the production of the underlying documents, but we expect those to be produced to us as part of what the Claimant has described as ongoing document disclosure. If those documents and the spreadsheet that summarises them are introduced into evidence, then there they are.
Is it, though, my learned friend's intention, and he said yesterday, although he didn't ask any questions about this, he said yesterday that Mr Smith would be better placed than he to explain these swaps, is it his intention that Mr Smith produce a fourth witness statement to discuss those documents?
We don't know. If that were the case, would we agree? I also don't know. And if I didn't agree, would you agree? Again, we don't know the answer to that question either.
So your question, sir, is, I think, slightly premature so far as it deals with any future evidence. There isn't any future evidence. Mr Smith is not sequestered in respect of a fourth witness statement in
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There is absolutely no reason why Mr Smith could not have been questioned about those documents during this examination.
The only thing that has happened is that we have disclosed at the beginning of this week more of those documents. Let me give you an update. We said that we were making efforts to gather those documents from our clients. We have indeed and I expect that we will be in a position to provide those to our friends opposite during the course of tomorrow. That's by way of update.
But it seemed to us somewhat surprising that no questions were put to Mr Smith on the basis of that category of documents evidencing these transactions that have been with those opposite since early 2020, of which now they will simply have more.
Now, that's not to deny their opportunity to cross-examine on additional documentation that is produced to them this week, and let me say and repeat what I said to you yesterday morning. For our part we have absolutely no objection to all of those documents being introduced to -- on the record. It seems somewhat academic as to who should do the introducing. Given the interest the tribunal has in it, it seems to me that they must be introduced, and I repeat again, we have no objection to their introduction.
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But what I am somewhat struggling with is the fact that Mr Smith was not asked any questions about those documents that our friends opposite have had since early 2020.
Now, that having been said, I don't know whether there's a decision for you to take about that. I don't see how that impacts sequestration. That does take me back to my opening remarks which is it doesn't seem to us that this is a situation in which any rules of sequestration beyond those that have already been applied need apply.
Let me maybe add one point, Mr Chairman, members of the tribunal. We noticed, and this is perhaps a little bit an explanation for our slight surprise that no questions were raised about it, that the transaction reports that have been with those opposite since early 2020 were actually in the cross-examination bundle that was presented to Mr Smith yesterday, leading us to understand -- it's at tab 66, tab 67 -- to expect that he would have received already some questions about the documents those opposite do have on the record. That opportunity hasn't been taken. That is, of course, entirely the right and choice of those opposite, but I do think that that is relevant to the procedural question that arises now.
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a discussion that we need to have with him. But I think he has heard the interest that the tribunal has in this and we will take that discussion away with us now.
THE PRESIDENT: From the tribunal's perspective, what would be helpful is if counsel confer and also discuss the logistics and the timing of -- I understand there will be produced -- the further documents will be produced tomorrow, and then get a sense perhaps from the Respondent as soon as you have had a chance to review them whether you want to produce them as exhibits.
And then we could have some kind of visibility in terms of whether and when there will be further evidence produced and how the parties propose to deal with that further evidence. We still have more than a week to go in this hearing, but the schedule is getting tighter as we proceed.
So I'm just raising this, that there should be some consultation between counsel that we get a better sense of where we are heading if there is further examination, if there's further evidence, and how the parties hopefully agree to deal with that further evidence in the course of this hearing.
That is simply a wish from the tribunal to the parties.
If there is anything else, any further comments from
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THE PRESIDENT: Mr Thomas -- sorry.
MR TURNER: If only I was sitting on this side of the table, sir, this case would be decided very much more easily.
Just to pick up, I think there is no difference between us as to sequestration. Clearly, as Mr Smith in the two witness statements that were filed since these documents first were put into evidence has not spoken of the swaps, it was not appropriate to talk to him about them today.
We wondered whether my learned friend would be asking him questions in chief and we prepared the cross-examination bundles appropriately.
But there is no distinction between us on the procedural question that you posed, sir, about whether Mr Smith is in purdah still. As far as we are concerned, he is not.
THE PRESIDENT: Very good. Mr Smith, thank you very much for your testimony. You are released.
THE WITNESS: Thank you.
THE PRESIDENT: I'm not sure whether there have been arrangements made that in case there is need to call him back, that he will be available this week or next week in terms of travelling arrangements and so on.
MR PARTASIDES: Mr President, I'm trying -- we have not yet had that discussion with Mr Smith. In fact that is
[Page 117]
either party on this particular issue? Very good.
We are approaching 12.30. So this might be just as well a good time to break for lunch, and then we continue with [Redacted] first thing in the afternoon, and we will resume at 1.20. Thank you very much.
(12.21 pm)
(The short adjournment)
(1.20 pm)
THE PRESIDENT: Good afternoon, and welcome back.
I understand the parties have agreed that the examination of the next three witnesses will be confidential. I just ask the counsel to confirm that, Mr Partasides.
MR PARTASIDES: Thank you, Mr President. We made that request, [Redacted] of the next three witnesses, and our colleagues opposite graciously agreed.
MR TURNER: I'm sure you would expect nothing less from graciousness from our part, so I confirm exactly what my learned friend has said.
THE PRESIDENT: Thank you, Mr Turner.
So that means that there will be no video feed during the examination of the next three witnesses until we reach Mr [Redacted].
So the next witness is [Redacted]. Good afternoon, We understand we will have a consecutive
[Page 118]
executive interpretation. Do we still need headsets or is -- the consecutive is not going to be by an interpreter who is sitting next -- so we need the headsets, do we?
MR PARTASIDES: Mr President, in fact this witness has agreed to give evidence in English.
[Redacted] (called)
THE PRESIDENT: Okay. So I start again, good afternoon, [Redacted].
THE WITNESS: Good afternoon.
THE PRESIDENT: You have been called as a witness of a fact in this hearing. So you are required to speak the truth. You understand that?
THE WITNESS: Yes.
THE PRESIDENT: So for that purpose, can I ask you to read the declaration of a witness of fact that you should have there in Korean. Because you are testifying in English, maybe we should give you the English version of the declaration. It's both -- okay. Very good. Can you please read that?
THE WITNESS: Yes. I solemnly declare upon my honour and conscience that I will speak the truth, the whole truth and nothing through the truth.
THE PRESIDENT: Thank you very much.
You have submitted one witness statement in this
[Page 119]
my colleague Simon Consedine who will be conducting the direct examination of this witness.
MR CONSEDINE: Thank you, Mr Partasides.
[Redacted], good afternoon.
A. Good afternoon.
Q. Can you please describe in broad terms for the tribunal what your witness statement contains?
A. Yes. My witness statement describes the procedure I took to attend and take notes for the Korean criminal proceedings. I specifically went to three different criminal court proceedings: the [Redacted] proceeding, the [Redacted] proceeding and the [Redacted] proceeding.
Q. And I understand that your witness statement contains several annexes. What does each annex contain?
A. Each annex represents a different court hearing day for which I attended to take notes. For me specifically -- I have annexed five different court hearing days, so five different annexes. All five of them are from the [Redacted] criminal court proceedings. Each annex is further divided into three parts. The first part is the original, sometimes that was handwritten, sometimes it was typed. The second part is a Korean transcription of a section of the original, and the third is an English translation of a portion of the Korean transcription.
[Page 120]
proceeding dated 4 April 2019; is that correct?
THE WITNESS: Yes.
THE PRESIDENT: And do you have a copy of that witness statement in front of you?
THE WITNESS: Yes.
THE PRESIDENT: Do you confirm the contents of that witness statement?
THE WITNESS: Yes.
THE PRESIDENT: Do you have any corrections to make?
THE WITNESS: Yes, my current title at [Redacted] is a different one on paragraph 1.
THE PRESIDENT: Thank you very much.
I'm sure counsel have already explained to you how the examination is going to proceed. But just for purposes of making it clear, you will be first asked few questions, possibly, by counsel for the Claimant. Then there will be questions from counsel for the Respondent and then in the end there may be further questions from counsel for the Claimant, and the members of the tribunal may put questions to you at any time; is that understood?
THE WITNESS: Yes.
THE PRESIDENT: Thank you very much. Claimant, please.
Examination-in-chief by MR CONSEDINE.
MR PARTASIDES: Thank you, Mr President. Let me introduce
[Page 121]
Q. Thank you. Please turn to your annex 3. We see on page 1 that this is the English translation of your notes from the [Redacted] District Court hearing on 25 July 2017; is that right? {D2/4/1}
A. Yes.
Q. Can you tell us what was happening in court that day?
A. Yes. On this day Mr [Redacted] appeared to testify. For more context, on page 6 {D2/4/6}, on the bottom page 6, his title was Senior Executive Official, Secretary for Civil Affairs at the Blue House.
Q. Thank you. For the transcript, that's page 3 of the PDF, numbered page 6. {D2/4/3} on the document.
If we turn to the subsequent page, page 4 of the PDF, numbered page 7 {D2/4/4}, we see at the top of that page that your notes record a document that has been shown in court, a handwritten memo; is that correct?
A. Yes.
Q. And if you go to the bottom of that page, the final open bullet point records your noting down:
"Exerting significant influence on [Redacted] succession possible, National Pension Service shareholding."
Do you see that?
A. Yes.
Q. Let us now turn to exhibit C-585 {C/585/1}. The Korean original is the handwritten memorandum of
[Page 122]
Mr [Redacted], the Blue House's executive official, and this is the English translation that is showing on your screen.
If we go to page 2 of that {C/585/2}, I ask you to look at the second to last bullet point, and its sub-bullet points. Please take a moment to read those.
A. Yes.
Q. Is that the evidence that you heard being discussed when you made the notes that we looked at?
A. Yes.
MR CONSEDINE: Thank you, [Redacted]. You will now be asked some questions by counsel for the Republic of Korea.
Cross-examination by MS TAN
MS TAN: Thank you, Mr President.
[Redacted], good afternoon.
A. Good afternoon.
MS TAN: My name is Samantha Tan, I am one of the counsel for the Republic of Korea and I'll be asking you some questions this afternoon.
A. Okay.
Q. [Redacted], when you submitted your witness statement in this arbitration, you were a [Redacted] with [Redacted]. We understand from you that your current title at [Redacted] is a different one. Could you please tell us what that is?
[Page 123]
hearings?
A. No, not in detail.
Q. Do I understand that to mean that you had some knowledge of what Elliott's matter with [Redacted] was about when you attended those hearings?
A. Yes, around a few months before March 2017 we were asked to [Redacted] to monitor the media and I understood that these proceedings, these hearings that we were attending, were related to the media that we were monitoring just prior.
Q. And did you know why you were asked to attend those hearings beyond what you've just explained?
A. No.
Q. Have you read the Claimant's amended Statement of Claim in these proceedings?
A. Yes.
Q. We will come on to talk about the Claimant's second pleading in a moment. Do you know that in the amended Statement of Claim the Claimant uses the notes you submitted with your witness statement as evidence of the witness testimony and documents that were presented at the hearings you attended?
A. Yes.
Q. The Claimant has obtained in document production copies of transcripts from the Korean court proceedings that
[Page 124]
A. Yes, my current title is [Redacted].
Q. When did that title change?
A. [Redacted].
Q. [Redacted], there are three binders in front of you. I'm not sure which one you're looking at. It looks like a binder from counsel opposite. And I assume it contains your witness statement and its annexes?
A. Yes.
Q. There is another volume A from our side which also contains your witness statement and its annexes. I assume both binders should be identical.
Just to introduce the third binder though, it is volume B and it contains some other documents that I will be showing you today.
All of the binders contain documents in both English and Korean. I understand you're testifying in English but obviously feel free to avail yourself of the Korean versions of the documents when you need it.
[Redacted], in your witness statement you have submitted notes you took of certain Korean court hearings you attended in 2017. You attended those hearings and took notes on behalf of [Redacted] Elliott Associates. Did you know what Elliott's matter with [Redacted] was about when you attended those
[Page 125]
you attended and took notes of. Are you aware that in the Claimant's statement of Reply the Claimant said that documents it obtained in document production abundantly (and I'm quoting here) and explicitly confirmed the evidence that [Redacted] and [Redacted] gave?
A. Could you repeat what was quoted?
Q. Of course. The quote was -- the quote I read was 'abundantly and explicitly confirmed' from the statement of Reply. The question is: are you aware that the statement of Reply makes this statement?
A. Yes.
Q. For the tribunal's note, this statement is at paragraph 84 of the Claimant's Reply. It's been [Redacted] excerpted in volume B of the cross-examination binders, tab 3, but I don't need to take the tribunal or the witness to that at this moment.
[Redacted], are you aware that the amended Statement of Claim continues to contain allegations that are supported by your notes?
A. Yes.
Q. I'd like us to look at your witness statement now, please. Please go to paragraph 9. {D2/1/3}. Are you there?
A. Yes.
[Page 126]
Q. [Redacted], including you, [Redacted] in total attended court hearings and took notes for Elliott 's case; correct?
A. Correct.
Q. [Redacted]?
A. Correct.
Q. In notes you took at these hearings you used the initials [Redacted]. Did you use any abbreviations to refer to any of the [Redacted]?
A. I believe one of my annexes also indicates [Redacted].
Q. Thank you. I would like us to look at paragraph 16 now, please. {D2/1/5}. There you say that you were instructed to attend, among other hearings, the hearings listed on the table of page 6 of your witness statement, and earlier you explained that you [Redacted] specifically went to three different criminal court proceedings. Can I confirm that you also attended other hearings in addition to the five listed in the table on page 6 of your witness statement?
A. Yes, I did.
Q. And you took notes at these other hearings; correct?
A. Yes.
Q. Did you select the notes that were going to be annexed
[Page 127]
together, if you don't mind. You of course are free to refer back to the Korean documents if you need to.
So could you please go to page 12 of annex 3 {D2/4/9}.
At the bottom of the page you will see a black bullet point and the words "Evidence handwritten memo"; do you see that?
A. Yes.
Q. So this records that Mr [Redacted] was shown a handwritten memo; correct?
A. Yes.
Q. This was the same memo that counsel opposite took you to in your direct examination; correct?
A. Could you repeat?
Q. Was this the same memo that counsel opposite took you to in your direct examination?
A. Yes.
Q. Could you turn to page 13, please, and go to the second white bullet point from the top. {D2/4/10}
In that bullet point there is the alphabet Q and the question:
"What is the basis for the memo?"
Your notes record that Mr [Redacted] was asked what is the basis for the memo; correct?
A. That is what it seems when I look at this note.
[Page 128]
to your witness statement?
A. Yes. And I discussed it with the attorneys prior to the final submission of the witness statement.
Q. What criteria did you apply to select the notes that were going to be annexed to your witness statement?
A. Prior to submitting the amended Statement of Claim, [Redacted] provided us with citations from the Korean court decisions, as well as various media articles, and [Redacted] were asked to go through our own hearing notes and figure out the best examples, the best evidence that would correspond with the Korean court decision portions and then the media articles.
Q. I'm going to take you to annex 3 of your witness statement, and I think counsel opposite must have been prescient because he also took you to the same annex earlier.
So that annex has been introduced. It contains an excerpt from your notes of the testimony of Mr [Redacted] in the [Redacted] District Court hearing on 25 July 2017.
Before we look at the annex, may I ask if you have reviewed the English translations of the annexes?
A. I have.
Q. So then we can look at the English translations
[Page 129]
Q. And your notes record the answer. I'm reading from it:
"The nation envisioned something big for Samsung and since the Government can play a large role, they should find a way to help Samsung if there was anything that could be done."
Do you see that?
A. Yes.
Q. Now, if you could keep the notes open, and I recognise there are many binders on the table, could you please open binder B, volume B, I beg your pardon. And go to tab 1. That is exhibit R-296. {R/296/1}.
Are you there?
A. Yes.
Q. On the first page of that exhibit, and I assume you are looking at the English translation; is that right?
A. Yes.
Q. On the first page of that exhibit you see that this was the transcript of the court testimony of the witness [Redacted] on July 25, 2017 in case number 2017GoHap194 that was the [Redacted] District Court proceedings, and this is the transcript of the court testimony of Mr [Redacted] of which you took notes; correct?
A. Correct.
Q. Could you go to page 38, please.
[Page 130]
That's the last page in tab 1 of the English version. {R/296/6}
There's one question there. The question reads as follows: '[Redacted]'
Do you see that?
A. Yes.
Q. This was the question that you recorded in your notes that we were just looking at; is that right?
A. It appears so.
Q. Let's compare the answer that is recorded in the transcript to the answer that was in your notes, please. I'm reading from the transcript:
[Redacted]
"I'm going to focus on the second phrase that I read out. [Redacted]"
That line does not appear in your notes, does it?
A. Can I take a second to read the Korean of the transcript?
Q. Yes, of course?
[Page 131]
Q. Yes, of course. The question was: the line, and I'm quoting here, '[Redacted]' does not appear in your notes; correct?
A. It does not appear so.
Q. I'm going to continue reading the answer because I want to ask you about another phrase, from the word '[Redacted]'
[Redacted]
You see that, '[Redacted]'
A. Yes.
Q. The phrase I'm concerned with is the phrase '[Redacted]'. My question is this this phrase does not appear in your notes; correct?
A. I don't see those words specifically.
MS TAN: Just so you know, and for the tribunal's note, the Claimant uses this part of the witness's notes as evidence in the amended Statement of Claim, footnotes 487 and 219.
[Page 132]
A. It's page 38 as well, and it is the second question and answer from the top of page 38 of the Korean.
MR GARIBALDI: While we wait, could you please -- counsel, could you please clarify who is testifying here? Thank you.
MS TAN: Absolutely, Mr Garibaldi.
[Redacted], the testimony you were just looking at in R-296 was of Mr [Redacted] correct?
A. Correct.
MS TAN: Does that address your question, Mr Garibaldi?
MR GARIBALDI: Please remind us of what the position, function was of this gentleman.
MS TAN: I beg your pardon. I will do that.
Mr [Redacted] was an official in the Blue House in 2014; correct?
A. Based on my notes, yes.
Q. Indeed, you told us that during the direct examination earlier ?
A. Yes.
Q. Thank you.
A. I would just like to compare my Korean transcription with the Korean translation, so I'm just reviewing that.
Q. Yes, please do so. It's also page 13 of the Korean transcription, I believe. (Pause)
A. Could you re-ask the question?
[Page 133]
With that I have no further questions for [Redacted]. Thank you.
THE PRESIDENT: Thank you very much, Ms Tan. Any questions, Mr Consedine?
MR CONSEDINE: No, sir.
THE PRESIDENT: Any questions from my colleagues?
Questions from THE TRIBUNAL
MR GARIBALDI: [Redacted], the notes you took were intended to be verbatim transcripts of what you were hearing or a summary?
A. We were instructed to write everything that we could and so that was what I had attempted to do when I was writing these notes.
MR GARIBALDI: Are you -- do you have the skills of a court reporter?
A. No. So I -- when I reviewed the hearing transcripts after it was produced by the Republic of Korea at a later time, I had also realised and had known that there were missing portions from my notes.
MR GARIBALDI: I have no further questions, thank you.
THE PRESIDENT: Thank you very much, [Redacted]. That concludes your examination. So you may go.
THE WITNESS: Thank you.
(The witness withdrew)
THE PRESIDENT: I suggest we don't have a break, but
[Page 134]
continue with [Redacted] immediately if that is agreeable.
Will [Redacted] need interpretation?
MR CONSEDINE: Yes, sir.
[Redacted] (called)
(Evidence given through an interpreter)
THE PRESIDENT: The parties are ready to proceed?
Good afternoon, [Redacted].
THE WITNESS: Good afternoon.
THE PRESIDENT: You have been called as a witness of fact to this hearing which means that you are required to tell us the truth.
THE WITNESS: Yes.
THE PRESIDENT: So for that purpose can I please ask you to read the declaration of a witness of fact that you should have in front of you. You can read it in Korean, please.
Thank you very much. You have submitted [Redacted]. I understand you understand English or do you need an interpretation for what I say?
THE INTERPRETER: The English into Korean is being interpreted simultaneously.
THE PRESIDENT: I understand. So you have submitted your witness statement in this proceeding dated 4 April 2019. Do you have that in front of you?
THE WITNESS: Yes.
[Page 135]
simultaneously.
THE PRESIDENT: That should work, assuming you hear what the interpreter said sitting next to you will be saying when you have your headset on. But let's try.
You hear the interpretation?
THE INTERPRETER: The channel may be on a different channel.
[Redacted] on floor. Now it's on the correct channel.
THE PRESIDENT: Now you hear the interpretation, do you?
THE WITNESS: Yes.
THE PRESIDENT: Very good. So I repeat my question. I was simply asking whether you have your witness statement dated 4 April 2019 in front of you {D3/1/1}
THE WITNESS: Yes.
THE PRESIDENT: And can you please confirm the content of that statement? You confirm for the record that what you say there is true and correct?
THE WITNESS: Yes, I do.
THE PRESIDENT: So the way your examination will proceed is there will be questions by counsel for the Claimant first, then there will be further questions by counsel for the Respondent, and then there may be further questions by counsel for the Claimant. The members of the tribunal may ask questions at any time. Is that understood?
THE WITNESS: Yes.
[Page 136]
THE PRESIDENT: Can you please confirm the contents of that statement? I'm simply asking you to confirm that the contents are correct and you have no corrections to make.
MR CONSEDINE: Sir, we are reluctant to interrupt, but [Redacted] may benefit from the translation into Korean of the questions that you're putting to [Redacted]. [Redacted] is an English speaker, but I understand [Redacted] can correct me if I'm wrong, but I just raise that, sorry.
THE PRESIDENT: Can you repeat what you said?
MR CONSEDINE: Yes, apologies. I'm just noting that [Redacted] may benefit from a translation into Korean of the questions in English that you are putting.
THE PRESIDENT: I understand they are being provided simultaneously.
MS TAN: If I may, if [Redacted] is to use the simultaneous translation, then [Redacted] would have to wear the headsets.
If [Redacted] wears the headsets, I am not sure [Redacted] can hear the Korean to English translation that will happen beside [Redacted].
MR CONSEDINE: It is to be consecutive translation.
THE INTERPRETER: That part will be done consecutively.
MS TAN: [Redacted] has to take off [Redacted] headset each time?
THE INTERPRETER: When I'm speaking in English, the consecutive, they will not be interpreting that
[Page 137]
THE PRESIDENT: Very good.
Mr Consedine.
Examination-in-chief by MR CONSEDINE
MR CONSEDINE: Thank you, sir. Good afternoon, [Redacted].
A. Good afternoon.
Q. Can you please describe for the tribunal what your witness statement and its annexes contain?
A. The first part of my witness statement is my employment with [Redacted] and following that is my education. And the second part contains explanations of my sitting in in the proceedings before the Korean courts.
[Page 157]
1 under the strike-through, the fourth line, there's the
2 word " difficult so refer to the Experts Voting
3 Committee". I would like us to compare that with C-508
4 where the transcript there reads "[Redacted]
5 [Redacted]"
6 And then:
7 "[Redacted]"
8 So the words
9 "[Redacted]" do not appear your notes; correct?
10 A. Correct.
11 Q. The Claimant relies on this part of your notes in its
12 amended Statement of Claim and for context could we
13 please look at it. It's in volume B, so the same volume
14 where C-508 is, tab 2.
15 There is the amended Statement of Claim, but only
16 extracts, and I would like us to look at the extract
17 from paragraph 90 first. Are you there?
18 A. Yes.
19 Q. In paragraph 90, reading from the sentence that follows
20 from footnote 207 do you see footnote 207? It's
21 around halfway through the paragraph. After footnote
22 207, the sentence reads:
23 "The NPS considered the merger proposal
24 'controversial for being advantageous for the largest
25
[Page 159]
1 "Moreover, the NPS confirmed a clear precedent in
2 June 2015 the very month before it voted on the
3 SC&T-Cheil merger when the Investment Committee chose
4 to refer the vote on another Chaebol merger, the SK
5 Merger, to the Experts Voting Committee because it was
6 considered controversial and too difficult for the NPS
7 investment management to decide."
8 Again, the word there used is " difficult" and
9 nothing more.
10 The footnote at the end of that sentence is 541, and
11 can you please look at footnote 541 and see that your
12 witness statement is again cited in the middle of that
13 footnote. Do you see that?
14 A. Yes, I see it.
15 Q. The Claimant does not explain that the difficulty was
16 limited to difficulty in determining whether corporate
17 value would be undermined; correct?
18 A. According to the note, that is correct.
19 MS TAN: Thank you, [Redacted] I have no further questions.
20 THE PRESIDENT: Thank you, Ms Tan. Mr Consedine?
21 MR CONSEDINE: Nothing further from us, sir.
22 Questions from THE TRIBUNAL
23 MR GARIBALDI: [Redacted]
24 A. Yes.
25 MR GARIBALDI: Are you trained to take notes that are word
[Page 158]
1 shareholders' and the merger vote ' difficult' to
2 decide."
3 {B/3/48}
4 Then there is a footnote 208. If you go to footnote
5 208 you will see that the footnote cites only to your
6 witness statement. Do you see that? {B/3/49}
7 A. Yes, I see that it cites my witness statement.
8 Q. It cites CWS4, which is your witness statement, annex 4,
9 and specifically the pincite is to page 4. Do you see
10 that?
11 A. Yes, I see it.
12 Q. The Claimant uses this same part of your sorry, your
13 notes in another part of its amended Statement of Claim.
14 That's in paragraph 230 which is also extracted in the
15 same tab. I believe it's the next page after
16 paragraph 90 ends. Do you see paragraph 230? {B/3/126}
17 A. Yes, I see it.
18 Q. There from the second sentence the Claimant says:
19 "While Korean law does not define what is
20 difficult', the NPS has routinely sent voting decisions
21 that were complex, controversial or had generated
22 conflicting views amongst market commentators to the
23 Experts Voting Committee to determine, particularly
24 those involving Chaebol."
25 And then the next sentence it says:
[Page 160]
1 for word accurate transcriptions of what you hear?
2 A. No, I have not received separate training for that.
3 MR GARIBALDI: Is it fair to say that the notes you took are
4 the main things that you could record of what you hear
5 based on your normal writing skills; is that right?
6 A. Yes, and as I have stated in my witness statement, for
7 the hearings that I attended, I tried my best to write
8 down what I could hear and so I think what you said
9 could be true [Redacted] can be true. [Redacted]
10 MR GARIBALDI: Thank you very much.
11 A. Thank you
12 THE PRESIDENT: Okay, [Redacted] That concludes your
13 examination. Thank you for your time.
14 (The witness withdrew)
15 THE PRESIDENT: I suggest we break now for tea or coffee
16 until 3.10. Thank you very much.
17 (2.56 pm)
18 (A short break)
19 (3.14 pm)
20 THE PRESIDENT: Good afternoon. Are we ready to start? Any
21 issues?
22 MR PARTASIDES: Perhaps one point, Mr President, if I may,
23 in relation to the time that was just spent on the three
24 [Redacted]
25 I do think it's worth just putting the evidence that
[Page 161]
1 you just heard into context. You heard me say in our
2 opening submission, but I do feel compelled to say it
3 again, that the [Redacted] records of the hearings that
4 they attended in Korea were attached to our Statement of
5 Claim, our amended Statement of Claim, our first round
6 submission in this case. That was a time before the
7 Claimant had access to the transcripts and the documents
8 referred to in those hearings. It was not then apparent
9 that we would ever have access to those transcripts and
10 those documents as a result of those hearings.
11 Through document production we subsequently did get
12 the underlying documents that the [Redacted] made notes
13 of, and as you will, I think, have noted, in our second
14 round submission we made reference exclusively to the
15 underlying documents rather than the [Redacted] reports.
16 Given the time that was spent on those three
17 examinations, I wanted to make it clear to the tribunal
18 that we are relying on those documents, not the
19 [Redacted] reports.
20 THE PRESIDENT: Any comment on that, Mr Turner?
21 MR TURNER: No comment, sir, thank you very much.
22 THE PRESIDENT: Okay.
23 MR TERCEÑO: Mr President, if I may, a small matter of
24 housekeeping. During the previous examinations there
25 was a hybrid interpretation done of both simultaneous
[Page 163]
1 inherent on us to have to explain why that we are
2 suddenly not going to change from the agreed procedural
3 order because consecutive interpretation was agreed and
4 is set forth in the procedural order.
5 However, I will say that I also understand that the
6 previous witnesses all speak English. Mr [Redacted] does not
7 speak English.
8 We have had conversations with our client
9 representatives who said that for some of them it was
10 difficult to follow because the answers began to be
11 given while the simultaneous interpretation was still
12 going on in some cases, and so they have also requested
13 that we stick with what was previously agreed by the
14 parties, and we see no reason to deviate from that now.
15 THE PRESIDENT: That is indeed the ruling in PO20.
16 Consecutive interpretation into English of witnesses and
17 experts testifying in Korean. It may take longer, but
18 that was the ruling, unless the parties agree otherwise.
19 You are always free to agree otherwise.
20 MR [Redacted] (called)
21 (Evidence given through an interpreter)
22 THE PRESIDENT: Good afternoon, Mr [Redacted] and welcome.
23 THE WITNESS: Good afternoon.
24 THE PRESIDENT: You have been called as a witness of fact in
25 this arbitration and in this hearing which means that
[Page 162]
1 and consecutive simultaneous for the questions. We've
2 asked that we return to the agreed consecutive
3 interpretation for both the questions to the witness and
4 the witness's answers and we have discussed that with
5 the interpreters and I believe everything is in order to
6 do it that way.
7 MR PARTASIDES: Mr Chairman, if I may, it is indeed true
8 that in the last three examinations at least two of
9 the last three examinations, we were willing to adopt
10 a hybrid approach which meant that the witness was able
11 to hear the simultaneous translation and then give the
12 answer consecutively.
13 The reason we did that is that it saved everyone
14 a significant amount of time. It seemed to work well,
15 even though that wasn't the procedural order, even
16 though we could have insisted on doing it differently.
17 That seemed to be a practicable way forward. This is
18 going to be a much longer cross-examination, and if we
19 don't adopt the same solution that we just saw work
20 here, it is going to cost us a significant amount of
21 time. So with that said, I'm asking myself why is it
22 that we can't make use of the simultaneous
23 interpretation at least for the interpretation of my
24 questions with this witness as we've just done.
25 MR TERCEÑO: Mr President, if I may, I'm not sure that it is
[Page 164]
1 you will be required to tell the truth and I would ask
2 you to confirm that by reading the declaration of
3 a witness of fact that you should have in front of you.
4 Can you please read that.
5 THE WITNESS: Yes, I will. Declaration for fact witness.
6 I solemnly declare upon my honour and conscience that
7 I will speak the truth, the whole truth and nothing but
8 the truth.
9 THE PRESIDENT: Thank you very much, Mr [Redacted] You have
10 submitted two witness statements in this proceeding, the
11 first one dated 24 September 2019 and a second one
12 13 November 2020. I understand you have copies of those
13 two statements in front of you. Can you please confirm
14 that?
15 THE WITNESS: Yes, these are the witness statements that
16 I confirmed and signed.
17 THE PRESIDENT: And you confirm that they reflect your
18 recollection and they are true to the best of your
19 knowledge?
20 THE WITNESS: That is correct, Mr President.
21 THE PRESIDENT: Thank you very much, Mr [Redacted] The way it
22 will work now, there will be a few questions by counsel
23 for the Respondent first, then questions,
24 cross-examination by counsel for the Claimant, and then
25 possibly further questions by counsel for the
[Page 165]
1 Respondent. The members of the tribunal may put
2 questions to you at any time. Is that understood?
3 THE WITNESS: Yes, I understand.
4 THE PRESIDENT: Thank you very much, sir. The Respondent,
5 Mr Terceño.
6 MR TERCEÑO: Thank you, Mr President. We have no questions
7 on direct examination for this witness and are happy to
8 hand him over to the Claimant.
9 Cross-examination by MR PARTASIDES
10 MR PARTASIDES: Good afternoon, Mr [Redacted]
11 A. Good afternoon.
12 Q. My name is Constantine Partasides and I am counsel for
13 the Claimant in this case, and I will be asking you some
14 questions.
15 A. I understand.
16 Q. You yourself are a lawyer, Mr [Redacted] yes?
17 A. That is correct.
18 Q. You've been in private practice representing clients
19 since 1996; yes?
20 A. That is correct.
21 Q. You understand that your role here is as a witness of
22 fact; yes?
23 A. Yes, I understand that.
24 Q. Are you aware that you are the only witness of fact who
25 is testifying in these proceedings on behalf of the
[Page 167]
1 of the NPS's Investment Committee in July 2015?
2 A. I have heard nothing of the sort and in fact there is
3 not one person on the Investment Committee that I know
4 personally.
5 Q. Does that mean that you have no idea what views the
6 members of the Investment Committee in July 2015 might
7 have on the subject matter of your evidence?
8 A. That is correct. I have no way of knowing.
9 Q. You were appointed to the Experts Voting Committee in
10 2013, sir; yes?
11 A. That is correct.
12 Q. And in 2013, when you were appointed to the committee,
13 you were then, as you are now, the managing partner of
14 a law firm I&S; yes?
15 A. That is correct and the law firm of I&S since its
16 establishment to this day has as its managing partner,
17 myself.
18 Q. And your specialism, as I understand it, is employment
19 labour law; yes?
20 A. That is correct.
21 Q. And you were nominated to become a member of the Experts
22 Voting Committee by the Korean Enterprise Institute to
23 which you have been an adviser; is that right?
24 A. That is correct.
25 Q. And as I understand it, that is an organisation that
[Page 166]
1 Republic of Korea?
2 A. I am aware that I am a witness. I don't know whether
3 I'm the only witness.
4 Q. Who from within the Korean Government asked you to give
5 evidence in this case, Mr [Redacted]?
6 A. I do not recall the name of the person, but it was
7 a prosecutor with the Republic of Korea's Ministry of
8 Justice as well as a member of the ROK counsel team,
9 Mr Sanghoon Han from Lee & Ko who came to see me and
10 asked me to be a witness.
11 Q. Do you know whether the prosecutor and Mr Sanghoon Han
12 approached anyone else who was on the Experts Voting
13 Committee in July 2015?
14 A. I have not heard what anything whatsoever about
15 whether there had been anyone else who had been asked
16 other than myself.
17 Q. Have you discussed the evidence that you have given in
18 your witness statements in these proceedings with anyone
19 else who was on the Experts Voting Committee in
20 July 2015?
21 A. I have not discussed either my witness statement or
22 testimony with one person. I have not discussed it with
23 anyone.
24 Q. Do you know whether the prosecutor that approached you
25 to give evidence here approached anyone who was a member
[Page 168]
1 represents the interests of employers; yes?
2 A. That is correct.
3 Q. And employers pay insurance premiums into the National
4 Pension Fund. Have I understood it correctly?
5 A. Yes, according to Korean law, half of the employment
6 insurance premium is paid by the employer. The other
7 half is paid by the employees.
8 Q. And so the organisation, the Korean Enterprise
9 Federation has an interest in the way in which the
10 National Pension Fund is managed; that follows; yes?
11 A. That is my understanding, and aside from the Special
12 Committee, there is a separate fund management or Fund
13 Operation Committee among whose members I understand is
14 an individual or individuals who became members as
15 a result of the recommendation by the KEF.
16 Q. Yes. You were nominated to the Experts Voting Committee
17 therefore, it's fair to say, independently of the
18 National Pension Service; yes?
19 A. Can you put it to me again, please?
20 Q. Yes. Your appointment to the Experts Voting Committee
21 was an appointment that was independent from the
22 National Pension Service?
23 A. I do not know about the specific appointment procedure
24 or how it works, but I am aware that a senior executive
25 of the KEF contacted me, saying that they would like to
[Page 169]
1 recommend me for the Special Committee to which proposal
2 I agreed, and afterwards I recall precisely that I was
3 given the position or became a member of the Special
4 Committee in the name of the Minister of Health and
5 Welfare, although I do not recall exactly how the
6 appointment procedure works.
7 Excuse me, or exactly who the person who has the
8 authority to make the appointment is.
9 Q. Am I right, Mr [Redacted] that the members of the Experts
10 Voting Committee are nominated by various organisations
11 but appointed by the Fund Operation Committee?
12 A. Actually I am not familiar with the actual process of
13 appointment because I was not involved. I received
14 a phone call that I had been appointed to the committee
15 and after receiving such information I began
16 participating in the meetings. But as I have said, I do
17 not know exactly how the process works.
18 Q. Do you remember who you received a phone call from?
19 A. I do not recall the exact name or names of the person or
20 persons, but whenever there would be a meeting of the
21 Special Committee convened, I would be contacted by
22 a deputy director from the Ministry of Health and
23 Welfare and the person filling that position would
24 change or shift from time to time. But again, I do not
25 know their names.
[Page 171]
1 Operational Guidelines.
2 Would you consider yourself to be familiar with the
3 Fund Operational Guidelines?
4 A. Almost every time a meeting of the committee was
5 convened, we would be given copies of two regulations.
6 My recollection is that one of them was the guidelines
7 for the exercise of voting rights. The other was
8 regarding the operational guidelines for the committee
9 on the exercise of voting rights. Because we had to do
10 our deliberation in compliance with these two guidelines
11 and regulations, they would be given to us at almost
12 every meeting.
13 Q. Thank you. Let us turn then to those operational
14 guidelines. Mr [Redacted] we have a file of documents that we
15 have prepared for you and if you would like, you might
16 take that file and I will give you the references to the
17 numbers in that file of the documents I will refer you
18 to. If you prefer, they will also be shown on a screen
19 in front of you. The choice is yours.
20 The first reference is to tab 10 in the file. It is
21 exhibit C-194, and the Opus reference in English is
22 {C/194/5}, and in Korean is {C/194K/5}.
23 A. Yes, I'm on tab 10 and I'm looking at the Korean
24 version.
25 Q. Very good. I shall refer, Mr [Redacted] to the English
[Page 170]
1 Q. Are you familiar with the Fund Operation Committee,
2 Mr [Redacted]?
3 A. I have heard of the name, but I do not know anything
4 more than that because I have never participated in
5 either their operation or their processes.
6 Q. So you are not aware that it is the Fund Operation
7 Committee that formally appoints members of the Experts
8 Voting Committee? You're not aware of that?
9 A. In the regulations I believe there's something called
10 the operational regulations of or for the Special
11 Committee. If you could kindly show me that document,
12 the operational regulations, I believe there's reference
13 in there regarding recommendation and operation.
14 Q. We're going to come to those operational guidelines.
15 Can I take it from what you have just said that you have
16 a broad familiarity with the Fund Operational
17 Guidelines?
18 A. In actuality I was not involved in either the
19 recommendation or the operation of that organisation.
20 I myself only know that I was contacted and was notified
21 that I had been appointed to the post.
22 Regarding the recommendation or appointment
23 procedure by any other organisation, I do not know.
24 Q. We're moving now from the subject of your appointment,
25 Mr [Redacted] to the subject of your familiarity with the Fund
[Page 172]
1 versions. I will give you references to the Korean
2 versions which are behind blue tabs in each of the
3 different dividers, and if you prefer both versions will
4 also be on your screen.
5 A. Yes, thank you. In order to give precise and accurate
6 testimony, I will focus mostly on the Korean text before
7 answering your questions.
8 Q. Very good. You should certainly do that. Let me ask
9 you a question about the operational guidelines that you
10 see in front of you. Can we agree, Mr [Redacted] that the
11 principle of making independent decisions in relation to
12 the National Pension Fund is made clear in the Fund
13 Operational Guidelines; yes?
14 A. Whereabouts in the Fund Operational Guidelines is that
15 text to be found, may I ask?
16 Q. Yes, you may. Let us look together. If you look at
17 Article 2, and if you look at sub-article (3), on the
18 screen in front of you as well, we see that the
19 guidelines are said to provide guidelines to make it
20 possible to maintain the consistency and independence of
21 the fund operation regardless of changes in internal
22 operational structure including governance of the fund
23 operation.
24 So let me ask you my question again: can you agree
25 with me that the principle of making independent
[Page 173]
1 decisions in relation to the National Pension Fund is
2 made clear in these operational guidelines?
3 A. The Fund Operational Guidelines in their entirety were
4 not presented to the members of the Special Committee.
5 Regarding the members of the Special Committee, we
6 did not need to know the entirety of the Fund
7 Operational Guidelines other than Article 5,
8 paragraph 5, which were disclosed or made known to us.
9 Otherwise all the other regulations were never explained
10 to us. Therefore, it is my recollection that Article 2,
11 paragraph 3 was never explained to the members of the
12 Special Committee.
13 Q. So have I understood that you were not familiar with
14 Article 2, paragraph 3; is that your evidence?
15 A. That is correct, that is why I had asked you.
16 Q. Let us turn to Article 4, Mr [Redacted] This is on page 6 of
17 the Opus reference {C/194/6} and also on the Korean
18 reference too. {C/194K/6} These state the fund
19 management principles.
20 Now, you just told us that Article 5 had been made
21 available to you. You didn't make any reference to
22 Article 4. Does that mean it is your testimony that you
23 were personally, as a member of the Experts Voting
24 Committee, unfamiliar with the fund management
25 principles, Mr [Redacted]
[Page 175]
1 not explained to us.
2 Q. So it is your evidence that the principles of fund
3 management in Article 4 were not relevant to the
4 independent Experts Voting Committee. That's your
5 evidence; yes?
6 A. I don't know whether there is relevance or what that
7 means in reality. We are the members of the Special
8 Committee. It was not explained to us. Nor was it
9 explained to us that this was a principle that we had to
10 comply with.
11 Q. Would you agree, Mr [Redacted] that the Experts Voting
12 Committee has greater independence, autonomy and
13 fairness than the NPS's Investment Committee?
14 A. When making a determination regarding the exercise of
15 voting rights, if one were to make the comparison with
16 the Investment Committee, I believe that in terms of
17 independence the Special Committee has a higher
18 independence than the Investment Committee.
19 Q. In this regard I'm going to take you to a document we're
20 going to be reviewing in some detail. It's one of your
21 two statements given to Korea's Public Prosecutor's
22 Office in late 2016. The first one was in November
23 2016, the second one was in December 2016 and the first
24 one I'll refer to is the second one. You will find it
25 at tab 18 in your bundle. It's exhibit C-469 for the
[Page 174]
1 A. That is correct. Article 4 was not explained
2 specifically or in detail to the members of the Special
3 Committee either.
4 Q. Was it explained at all to the members of the Expert
5 Voting Committee?
6 A. To my recollection, the entirety of Article 4 was never
7 explained to us.
8 Q. Let us then focus in on Article 4, paragraph 5. The.
9 "Principle of Management Independence: The Fund must
10 be managed in accordance with the above principles, and
11 these principles should not be undermined for other
12 purposes."
13 Is it your testimony that you were entirely
14 unfamiliar with this principle of management
15 independence, Mr [Redacted]?
16 A. That is correct. Regarding the independence of fund
17 management, we are the organisation that is involved in
18 the exercise of voting rights. So that is why the
19 principle regarding the independence of fund management
20 was not explained to us, because after all we are not
21 the people who are operating or managing the fund
22 itself.
23 In deliberating the items that were given or
24 presented to us to deliberate regarding voting rights,
25 that is what we were doing. So in that regard this was
[Page 176]
1 record. {C/469/1}. {C/469K/1}.
2 Can you explain the circumstances, Mr [Redacted], that led
3 you to give these statements to the Korean Special
4 Prosecutor?
5 A. Yes, I'm on tab 18, the statement report. At the time
6 the Special Prosecutor's office contacted me and they
7 said that there was an ongoing case involving the former
8 CIO of the NPSIM, Mr [Redacted] and others, and there were
9 some facts that they wanted to investigate regarding the
10 SC&T and Cheil Industries merger that the Special
11 Committee was involved in for which they requested my
12 cooperation.
13 Therefore I went to the Special Prosecutor's office
14 and spent a considerable amount of time in their
15 investigation with which I cooperated.
16 Q. Can you explain why you were called to give a second
17 statement to the prosecutor? We have two on the record.
18 This is the second one that was given just a few weeks
19 after your first one.
20 A. Regarding my statement report, I understand through
21 contact that I received from the counsel for the
22 Republic of Korea that there were certain parts in my
23 statement report, the facts involving which were being
24 argued in a different way by Elliott, and because
25 that Elliott was disputing certain facts in my
[Page 177]
1 statement report, I had to re-explain those points and
2 that is how I came to submit my second witness
3 statement.
4 Q. Mr [Redacted] it may be that there's some confusion here. I'm
5 talking about your two statement reports to the Korean
6 Prosecutor in November and December 2016, not your
7 witness statements in this arbitration.
8 Let me ask you my question again. You will find
9 that second report at tab 18. Can you explain why you
10 were asked to submit a second [Redacted] to a second interview
11 producing a second report by the Korean prosecutor in
12 December 2016?
13 A. I fear I misunderstood your previous question. I did
14 not make two statements at the Special Prosecutor's
15 office. Rather, what happened was first there was
16 an investigation by and statement report by the Seoul
17 District Prosecutor's office, which is a general regular
18 prosecutor, and then there was the Special Prosecutor's
19 office investigation.
20 So I participated in one interview each, one at the
21 General Prosecutor's office, the other at the Special
22 Prosecutor's office. [Redacted]
23 The reason for that was originally the investigation
24 was done by the Seoul District Prosecutor's office,
25 which is the General Prosecutor's office. That was
[Page 179]
1 Q. If we turn the page together, we see that [Redacted]
2 [Redacted]
3 [Redacted]
4 and we see that
5 [Redacted]; yes?
6 {C/469/22}, {C/469K/22}.
7 A. That is correct.
8 Q. Does that mean, Mr [Redacted] that you were shown a full
9 verbatim record of your evidence to the prosecutor in
10 order to confirm that it had been accurately recorded?
11 A. Usually in an investigation or an interview the
12 investigator or the prosecutor summarises my answers to
13 the questions. And so I confirmed that what's written
14 here accurately reflects what I had said before applying
15 my signature.
16 Q. Thank you. Let's [Redacted]
17 A. I recall it was hours and hours of a very long interview
18 and throughout the course of the discussion or dialogue,
19 not its entirety is recorded or written down. But the
20 prosecutor jots down parts of the dialogue that he or
21 she deems necessary and then presents it to me in
22 a summarised or compiled version to which I agree that
23 it reflects what I said.
24 Therefore, it is not as if in the course of the
25
[Page 178]
1 before the Special Prosecutor had been appointed. After
2 the appointment of the Special Prosecutor, the case went
3 to that Special Prosecutor. So that's why I was called
4 there to give my second statement.
5 Q. Thank you. That is very clear.
6 As a lawyer, can you confirm, Mr [Redacted] that you
7 understood that giving a false statement to a prosecutor
8 in the context of a criminal investigation would have
9 been a serious matter?
10 A. At the time I was called not as a suspect but as
11 a witness, and I gave my testimony to the extent of my
12 knowledge as accurately as I could.
13 Q. Can you confirm that you did not give a false statement
14 to the prosecutor?
15 A. I did not give a false statement, nor is there any
16 reason for me to.
17 Q. Let's turn together, Mr [Redacted] to page 21 of tab 18. So
18 this is reference {C/469/21}. It's the same pagination
19 in the Korean {C/469K/21}. If we can turn to page 21,
20 it's the same pagination in the Korean.
21 A. Yes. I'm on page 21.
22 Q. We see that [Redacted]
23 [Redacted] yes?
24 A. That is correct.
25
[Page 180]
1 investigation everything I say is written down verbatim,
2 word for word. One would be hard pressed to say that.
3 It would be difficult to say that.
4 Q. Let me be clear about this because this may become
5 important, Mr [Redacted] You are asked to confirm and apply
6 your signature to the statement that we have before us.
7 I have understood therefore that the statement we have
8 before us is the one that you have confirmed is
9 accurate; have I correctly understood?
10 A. What I'm trying to say is that by "accurate" it doesn't
11 mean that I was presented with the entirety of
12 everything that I had said. That is not the case. But
13 rather of the things that I said, there were certain
14 parts that the prosecutor wrote down because he or she
15 saw fit to do so, and in that regard, in the answer part
16 of the document, I am saying that it is accurate, not
17 the entirety of the dialogue.
18 Q. Okay, thank you.
19 Let us turn together to page 14 of this second
20 statement report you gave to the Special Prosecutor.
21 {C/469/14}, {C/469K/14}. Let me turn your attention
22 specifically to the second answer from the bottom of the
23 page. Here we read in your words, as reported by the
24 prosecutor, that [Redacted]
25
[Page 181]
1 [Redacted]
2 Do you see that, Mr [Redacted]?
3 A. Yes, I'm looking at it.
4 Q. And does that remain your opinion, that [Redacted]
5 [Redacted]
6 [Redacted]?
7 A. Yes, it remains unchanged to this day as I sit here.
8 Q. Let's turn to the question of when decisions are
9 referred to the Experts Voting Committee, and let me ask
10 you to turn to your first witness statement,
11 paragraph 7. That's {E/1/4} for the Opus reference.
12 {Ε/1K/4}.
13 Here, Mr [Redacted] if you take a moment to remind
14 yourself of what you wrote, you tell us that [Redacted]
15 [Redacted]
16 [Redacted]; yes?
17 A. Can you put it to me again, please?
18 Q. I'm simply asking you to confirm that in your
19 paragraph 7 you tell us that [Redacted]
20 [Redacted]
21 [Redacted] yes?
22 A. I believe there is not exactly a precise match between
23 what I wrote here as opposed to what you have just said,
24 counsel. I am saying here that [Redacted]
25
[Page 183]
1 A. Regarding whether the Samsung case should have been
2 referred to us or not was the topic of a fierce debate
3 that took place over many hours at the Special Committee
4 on 14 July. Again, prior to this there was no instance
5 in which this became an issue of a discussion or
6 concern.
7 Q. I'm not talking about the Samsung case, sir. And I'm
8 going to ask the question a third time, and I ask you to
9 focus on my question.
10 My question is: are you yourself aware of the
11 different ways in which a decision may be referred to
12 the Experts Voting Committee? The answer is either yes
13 or no.
14 A. Because I was not involved whatsoever, regarding the
15 referral other than this Samsung case or prior to this
16 Samsung case, I do not know.
17 Q. Okay. Let's turn together to the Fund Operational
18 Guidelines again. You will find them at tab 10 in your
19 bundle, {C/194/8} in both the English and the Korean
20 {C/194K/8}.
21 A. What was the page number again, please? Where does it
22 say the page number? [Redacted]
23 Q. So it should be page 8 in the pagination that's been
24 added in the lower right-hand corner, {C/194/8}.
25 A. And what was the tab number, please?
[Page 182]
1 [Redacted] I do not mention anything about what may
2 or may not or might or might not be referred.
3 Q. Can we agree that there are different ways in which
4 a voting decision may be referred to the Experts Voting
5 Committee?
6 A. Prior to this SC&T merger case, the requirement for any
7 referral to the Special Committee was never handled or
8 discussed.
9 In other words, in the beginning of the relevant
10 committee meetings, someone would present us with the
11 regulations from the NPS and say that the regulations
12 say that in instances where it is difficult for us to
13 make a decision, the decision would be referred to and
14 was being referred to the Special Committee. In other
15 words, we were notified that the agenda item had been
16 referred to us. Again, prior to the SC&T merger case,
17 there was never an instance in which the requirements
18 for referral were the subject of discussion or
19 controversy.
20 Q. Mr [Redacted] 1, I'm going to ask you to focus on the question
21 that I asked and let me ask it in a different way.
22 Are you yourself familiar with the different ways in
23 which a decision can be referred to the Experts Voting
24 Committee; yes or no?
25
[Page 184]
1 Q. We are still now in tab 10.
2 A. Number 10. What page on tab 10?
3 Q. {C/194/8}.
4 Sir, if I may just have a second of your time, if
5 you could look at me?
6 A. Page 4, did you say?
7 Q. No, page 8. Mr [Redacted] in case this helps, because this is
8 taking some time, if you look on your screen, you will
9 also see the pages I'm referring to on your screen. Of
10 course, if you prefer to look at the hard copy, that is
11 your privilege, but this may help us if you could also
12 use the screen. [Redacted]
13 A. Yes, in any case, I will refer to both the hard and soft
14 copies. [Redacted]
15 Q. Now, if we look together at Article 5(5)?
16 A. Article 5, did you say?
17 Q. Yes, Article 5 in the brackets, and then underneath it
18 you see a 6 in the brackets. Do you see that at the
19 bottom of the page? [Redacted]
20 A. Article 5. And what was the paragraph number of
21 Article 5?
22 Q. If we are together, we can see that in the middle of
23 that page the parenthesis around the 5 provides a list
24 of the ways in which the following matters regarding the
25 exercise of voting rights shall be referred to the
[Page 185]
1 Experts Voting Committee. And then we have a list, 1,
2 2, 3, 4, 5, 6. Are you with me?
3 A. Yes, I'm on Article 5, paragraph 5.
4 Q. If we look together at subparagraph 4 we can see
5 a reference there to matters that the Investment
6 Management Division, NPSIM, requests decisions as it
7 finds them difficult to decide whether to approve or
8 disapprove; do you see that?
9 A. Yes, I see it.
10 Q. Now let's move together, Mr [Redacted] down to 6 where we see
11 other matters that the Experts Voting Committee
12 chairperson deem necessary. Do you see that?
13 A. Yes, I see it.
14 Q. Are you familiar with this provision of the operational
15 guidelines, sir?
16 A. Yes, I'm very familiar with this provision because this
17 entire provision is reflected in the operational
18 regulations of the Special Committee. So that is why we
19 had we were able to see it or read it at every
20 meeting.
21 Q. Can you explain why you have made no reference to
22 subparagraph 6 of Article 5 in either of your witness
23 statements in this matter, sir?
24 A. Subparagraph 6, did you say, counsel?
25 Q. Yes, the one that we just read together.
[Page 187]
1 referred to the Experts Voting Committee to the question
2 of how decisions are taken by the Experts Voting
3 Committee once decisions are referred to it.
4 Let's now look, sir, again at Article 4 of the
5 operational guidelines. You will find these on
6 {C/194/6} in both the English and the Korean.
7 As I understood your evidence earlier, Mr [Redacted] you
8 told us you were not familiar with the fund management
9 principles set out in Article 4; is that right?
10 A. That's correct.
11 Q. So when a decision is referred to this independent body,
12 the Experts Voting Committee, is it your evidence that
13 it is not in any way bound by the fund management
14 principles that we see at Article 4?
15 A. Regarding whether Article 4 should be complied with, in
16 actuality, it was never explained at the
17 Special Committee, nor were the members fully familiar
18 with or aware of these principles.
19 Q. So you are not familiar with or aware of the principle
20 of profitability; is that your evidence?
21 A. Generally speaking, when making a decision on how to
22 exercise voting rights at the Special Committee levels,
23 the members of the committee understood that it was to
24 be in the interests of NPS or for the profitability of
25 NPS. We were to make the right decision. That's the
[Page 186]
1 A. In most cases subparagraph 4 was invoked to convene our
2 meetings. It was only the one instance in which
3 subparagraph 6 was invoked or applied to host a meeting
4 of the Special Committee and this was after the last
5 Investment Committee decision when on 14 July the
6 Special Committee was convened.
7 So other than this, this was the only time
8 subparagraph 6 was invoked. All the other meetings were
9 convened based on subparagraph 4.
10 Q. So the only instance in which subparagraph 6 was invoked
11 was in relation to this case, and that leads me to
12 repeat the question I asked you. Can you explain why
13 you made no reference at all to this subparagraph in
14 either of your witness statements?
15 A. It's not as if I did not do so consciously, but rather
16 when the chairman of the committee was convening the
17 meeting of 14 July based on subparagraph 6, I was the
18 one who prepared the draft of the notice to convene
19 a meeting of the Special Committee. That's why
20 I remember subparagraph 6.
21 Because the convocation procedure for the committee
22 meeting was not considered an important item or an item
23 being disputed, that's the only reason I did not mention
24 this there.
25 Q. Let's turn from the question of when decisions are
[Page 188]
1 extent to which we were to make a consideration.
2 It was not explained to us that we had to follow
3 these regulations, nor was that our understanding.
4 Q. Let's turn then to Article 17 of the operational
5 guidelines. You see those at page 13 of the hearing
6 bundle, {C/194/13} both in the English and in the
7 Korean. [Redacted]
8 I'll ask you to spend a moment [Redacted]
9 A. I believe it's page 9, not 13.
10 Q. Yes, 9 is the internal pagination. The original
11 pagination. Page 13 you will see is the hearing bundle
12 pagination, but I think we're on the right page
13 together.
14 Please take a moment to just read Article 17
15 sorry, Article 17, subparagraph 1 and 2 and 3.
16 A. I have read it.
17 Q. Were you also unfamiliar with these provisions, Mr [Redacted]?
18 A. No, actually I believe these provisions were explained
19 to us at almost every meeting.
20 Q. So you understood the responsibilities that these
21 provisions imposed upon you, that your responsibility
22 was to exercise your voting rights to increase the
23 assets of the fund; yes?
24 A. Yes, I believe my understanding was of paragraph 2 of
25 Article 17.
[Page 189]
1 Q. And you understood that you should exercise your voting
2 rights in a way that contributes to increasing the
3 shareholder value in the long term. That's
4 article 17(3). You understood that; yes?
5 A. That is correct.
6 Q. Let's turn together to Article 23. This you will find
7 on page 16 of the hearing bundle references, page 12 of
8 the internal references {C/194/16}, {C/194K/16}.
9 A. Yes, I'm looking at Article 23.
10 Q. Were you familiar with the ethical standards that this
11 imposed on relevant parties to the fund operation,
12 Mr [Redacted]?
13 A. It was not explained to us. I believe this applies to
14 the fund manager. So perhaps it was explained to them.
15 But I believe it was not a principle that applied to us
16 as the members of the Special Committee.
17 Q. You did not believe that you were subject to the ethical
18 standards set out in Article 23?
19 A. Article 23 was not explained to us at the time.
20 I believe I recall that there was a separate code of
21 ethics that applied to the members of the Special
22 Committee. [Redacted]
23 Q. Let's turn to what you told the prosecutor in your
24 second statement. This is again tab 18?
25 MR GARIBALDI: May I ask a question
[Page 191]
1 MR THOMAS: I want to understand this process.
2 Mr [Redacted] would you receive if I were to compare
3 three different meetings of the Special Committee, would
4 there be certain documents that would be included in
5 each file of documents? In other words, would the
6 extracts, for example Article 17, would that be included
7 every time in the bundle of documents that would be put
8 to the committee?
9 A. To my recollection the extracted regulations and the
10 operational regulations pertaining to the Special
11 Committee almost always would be included in the meeting
12 materials to be distributed to the members. That is how
13 I recall it.
14 Other than that, if other regulations were needed,
15 they would be extracted and be included in part in the
16 documents on an as-needed basis.
17 Regarding the Article 17 that the arbitrator has
18 cited as an example, or paragraph 5 of Article 5 for
19 that matter, I believe I recall having seen them in
20 the as well as the operational regulations at almost
21 every meeting. But let me say that the entirety of the
22 regulations were never seen by us, nor there was a need
23 for us to see all of the regulations.
24 MR THOMAS: Thank you.
25 MR PARTASIDES: Let's move, Mr [Redacted] back to your second
[Page 190]
1 MR PARTASIDES: Of course, sir.
2 MR GARIBALDI: Before turning to that subject [Redacted]
3 Mr [Redacted] at several points you have testified that
4 certain aspects of these guidelines were explained to
5 us to you as a member of the Experts Voting
6 Committee. Some other things were not explained. Who
7 did the explaining?
8 A. Whenever we would attend these meetings, there would be
9 materials or documents prepared for the meeting waiting
10 for us. If there was a relevant regulation, certain
11 extracts from that regulation would be on those pages,
12 not the entirety of the relevant regulations, but just
13 the extracts regarding the pertinent regulations.
14 In the course of the looking at the meeting
15 materials, I believe I remember the documents containing
16 this information. So that is why I used the term
17 "explained to us" as a way of saying I remember seeing
18 these on the documents.
19 Regarding the extracts from the regulations that
20 were the basis of our deliberations as members of the
21 Special Committee, only some parts were extracted and so
22 that is why we came to be aware of some, not all the
23 regulations in their entirety. I think that is the
24 correct way of understanding what I'm trying to testify.
25 MR GARIBALDI: Thank you.
[Page 192]
1 statement to the prosecutor, the Special Prosecutor.
2 You will find it at tab 18. It's {C/469/20} and I'm
3 going to ask for you to turn to page 20.
4 A. Yes, I'm on tab 18. What was the page number, did you
5 say?
6 Q. 20. Mr [Redacted] if I can ask you to please look at your
7 screen because that will help you find the document. Do
8 you have that?
9 A. Yes, I'm on page 20. Thank you.
10 Q. Could I ask you to read to yourself the first question
11 and your answer to that first question at the top of the
12 page. [Redacted]
13 A. Yes, I'm looking at it.
14 Q. Have you read it?
15 A. Yes.
16 Q. Is this still your view, Mr [Redacted]?
17 A. Yes, it is.
18 Q. Let's turn to the Experts Voting Committee's
19 deliberations on the SK merger. This was another merger
20 taking place within another Chaebol that the NPS was
21 going to vote on. You remember it; yes?
22 A. Yes, I remember three more cases that were similar.
23 Q. The SK merger took place in 2015, just before the merger
24 that is the subject of this arbitration. You remember
25 that proximity in time; yes?
[Page 193]
1 A. Yes, I remember.
2 Q. Can we agree that there are a number of interesting
3 parallels between the SK merger and the SC&T Cheil
4 Samsung merger?
5 A. There are parallels and there are differences,
6 I believe.
7 Q. Let's turn back to the statement you made to the Special
8 Prosecutor, the second prosecutor. Again, it's tab 18,
9 {C/469/1}, and this time I'm going to ask you to turn to
10 page 7 which is {C/469/7} for the Opus operator.
11 A. Yes, I'm looking at it.
12 Q. If we can look together, Mr [Redacted] to the last sentence of
13 the second paragraph from the top of that page, we see
14 that [Redacted]
15 [Redacted]
16 [Redacted]
17 [Redacted]
18 Do you see that?
19 A. That's correct.
20 Q. Are you expressing a different view as to the [Redacted]
21 [Redacted]
22 [Redacted]
23 here today?
24 A. I have not expressed any different view. I am saying
25 that there is an identicality regarding the control of
[Page 195]
1 Q. You are telling us that the owner family of the SK group
2 would reap the unfair benefits; yes?
3 A. I'm not referring to the SK group family per se, but
4 rather the shareholders of the company in which the SK
5 owner family has more shares.
6 Q. And so as a result of what you're telling us there, your
7 concern was that the owner family of the SK group would
8 reap unfair benefits; yes?
9 A. To be precise, it would not benefit just the SK owner
10 family. As it happened, the inside the SK group, the
11 SK owner family had more shares in SK C&C and if
12 I recall correctly, in actuality, the -- not SK C&C but
13 SK the company had a very large shareholding in the form
14 of their treasury shares, I believe off the top of my
15 head, I think it was about 23% and there was a footnote
16 in the meeting materials that said new shares in the new
17 merged entity would not be allocated to those treasury
18 shares.
19 Q. Yes, Mr [Redacted] I'm going to move on, thank you.
20 Have I understood it correctly that you identified
21 the reaping of unfair benefits by the shareholders of
22 one company as a valid basis to oppose the merger; yes?
23 A. It's difficult to generalise it in such abstract terms.
24 In this particular instance, that of the SK merger,
25 compared to the company in which the owner family has
[Page 194]
1 the group's founding family.
2 Q. You participated in the meeting of the Expert Voting
3 Committee on the exercise of voting rights in relation
4 to the SK merger; yes?
5 A. Yes, I did.
6 Q. And you've described your participation in that meeting
7 in your witness statements in this arbitration; yes?
8 A. That is correct.
9 Q. Let's turn to your first witness statement. You will
10 find it at tab 1 in the bundle. If I could ask you to
11 turn to paragraphs 15 and 16 of your witness statement,
12 and refamiliarise yourself with them. {E/1/6}
13 A. Paragraph 15, did you say?
14 Q. Yes, 15 and 16, please.
15 A. Yes, I looked at it.
16 Q. If we focus together on paragraph 16 we see that you
17 tell us that your problem with the SK merger was not
18 that it was illegal, but that it raised an ethical
19 concern; yes? {E/1/7}
20 A. That is correct.
21 Q. And you tell us that the reason for your ethical concern
22 was that the merger would cause the shareholders of one
23 merging company to reap unfair benefits at the expense
24 of the shareholders of the other merging company; yes?
25 A. Yes, that's what I have written down in paragraph 16.
[Page 196]
1 a large shareholding, the company that has a large
2 holding in treasury shares would not be allocated shares
3 based on those treasury shares. So in actuality the
4 benefit would go to the shareholders of the other
5 company, and I believe the NPS had shareholdings in both
6 companies, SK and SK C&C.
7 Because new shares would not be allocated based on
8 the treasury shares of SK, it was identified in the
9 course of the discussions that the shareholders of
10 SK C&C would be in a more favourable or advantageous
11 position. And NPS had shareholdings in both companies,
12 SK and SK C&C, and in that instance the unfairness of
13 not having the new shares allocated based on treasury
14 shares was identified.
15 Because NPS had similar ratios of shareholding in
16 both companies where they would make losses on the one
17 hand, they would make up for it in terms of gains in the
18 other company. So overall there would be no change in
19 NPS' profits.
20 So the company, SK C&C in which the owner family had
21 more shares was in a more advantageous position and the
22 shareholders of the other company, SK, were at
23 a disadvantageous position or that would be an unfair
24 transaction.
25 That is why we came to the conclusion that it would
[Page 197]
1 be difficult for the NPS to be in favour of this in
2 light of the fact that this would be an unfair
3 transaction.
4 MR PARTASIDES: Thank you. Mr Chairman, I'm conscious of
5 the time. I'm also conscious of how long this is
6 taking. And I wondered whether, one, this was an
7 appropriate moment for us to break briefly. I would
8 like to continue because I fear this is going to take
9 longer than I was anticipating, but I was wondering
10 whether I might enlist your help, Mr President, in just
11 encouraging Mr [Redacted] to try as much as he can to limit
12 himself to answering my questions. I'm conscious that
13 of course through an interpreter that's never as easy,
14 but I think it may help if you encourage him as I have
15 been doing.
16 THE PRESIDENT: Yes, indeed. The idea was to have a break
17 around 5 o'clock. So we can continue 6, maybe a bit
18 further. I'll confer with my colleagues. Let's have
19 a break now of 10 minutes or so, a shorter break. We
20 continue at 5.10.
21 And indeed, Mr [Redacted] if you could listen to the
22 questions very carefully and focus your answer to the
23 question in the interests of time, it will be shorter
24 that way.
25 THE WITNESS: I will do so, Mr President.
[Page 199]
1 will have consecutive interpretation for two days and we
2 have witnesses or experts that have produced the rather
3 lengthy expert opinions. So let's start tomorrow
4 morning at 8 o'clock and try to catch up over the next
5 two days. [Redacted]
6 Mr Partasides, please go on.
7 MR PARTASIDES: Thank you, Mr President.
8 Hello again, Mr [Redacted]
9 A. Hello.
10 Q. Let's turn together to tab 24 in your bundle. It's
11 document {R/109/1}.
12 A. Tab 24, did you say?
13 Q. Yes. R-109.
14 A. Yes.
15 Q. The Experts Voting Committee wrote a short report
16 explaining its decision to vote against that the NPS
17 should vote against the SK merger, and this is that
18 document. Are you familiar with this document?
19 A. I am aware of its contents, although I have not seen
20 this document per se before.
21 Q. Let me see if I can help. Let me turn your attention to
22 the text immediately under the table, Mr [Redacted] because we
23 see there in one bullet point the recording of the
24 reasons why the Experts Voting Committee decided against
25 the merger agreement and ask you just to very quickly
[Page 198]
1 THE PRESIDENT: Thank you very much, Mr [Redacted] I understand
2 you budgeted three hours for this cross. We were about
3 an hour behind the schedule when we started this. Where
4 do you think you are, roughly?
5 MR PARTASIDES: Yes. I'm not quite where I thought I would
6 be at this point actually, Mr President. We haven't
7 really got to the core subjects that I was planning to
8 get to. So I fear we're a little bit behind schedule.
9 THE PRESIDENT: Okay. Let's see how far we can go tonight.
10 But let's have a break now anyway. Ten minutes. We
11 continue at 5.10.
12 (4.58 pm)
13 (A short break)
14 (5.10 pm)
15 THE PRESIDENT: The Tribunal has conferred. Unfortunately we
16 need to stop at 6 o'clock today because of other
17 commitments, but if the parties are agreeable, we are
18 happy to start at 8 o'clock tomorrow morning to see if
19 we can catch up.
20 MR PARTASIDES: Certainly on our side that would be very
21 much appreciated, thank you members of the tribunal.
22 MR TURNER: I'm told by those who are closer to tomorrow's
23 events than I, that that is fine by us as well.
24 THE PRESIDENT: We appreciate the flexibility. Tomorrow and
25 Friday are probably going to be long days because we
[Page 200]
1 read that logic as expressed there to yourself and then
2 I have a simple question for you.
3 A. I have read it.
4 Q. Do you agree with the rationale that is recorded there
5 as explaining the Experts Voting Committee's decision
6 that the NPS vote against the SK merger?
7 A. What I see here is too briefly summarised, and there are
8 some very typical expressions. So I think it's hard to
9 say that this accurately reflects the key points as
10 discussed during the meeting, in other words the terms
11 and expressions used here are too abstract.
12 Q. Sir, I'm not going to ask you for your view on the
13 reasons. I simply want you to answer the question: do
14 you agree or disagree with the reasons recorded here as
15 explaining the rejection of the SK merger?
16 A. I believe the most important factor to consider has
17 disappeared from this page.
18 Q. Okay. Now, we can see that this page is a record of the
19 meeting that took place and the decision that was taken
20 on 24 June 2015. You see that at the very top of the
21 page; yes?
22 A. Yes, I see it.
23 Q. Let's turn now from the SK merger that was rejected by
24 the Experts Voting Committee on 20 June and let's turn
25 now to the Samsung C&T merger that was not referred to
[Page 201]
1 the Experts Voting Committee less than four weeks later.
2 We can agree, can't we, that the Samsung C&T-Cheil
3 merger was controversial; yes?
4 A. Yes, I agree.
5 Q. And we can agree that you expected the merger to be
6 referred to your Experts Voting Committee just as the SK
7 merger had been; yes?
8 A. Yes, that was the expectation.
9 Q. You were surprised that the merger decision was not
10 referred to your Experts Voting Committee; yes?
11 A. Yes, I was surprised.
12 Q. And a lot of your fellow committee member colleagues
13 were also surprised; yes?
14 A. Regarding my opinion at the time, I was in contact with
15 the chairman of the committee. He was also surprised
16 and I heard that the other members that the chairman had
17 contacted also had expressed their surprise.
18 Q. In fact, Mr [Redacted] you weren't just surprised. You and
19 your fellow committee members considered that it was
20 inappropriate for the Investment Committee to have not
21 referred the merger to the Special Committee; yes?
22 A. Yes, that was what we believed.
23 Q. You considered it was inappropriate that this wasn't
24 referred to your Experts Voting Committee because the
25 independence of the NPS's Investment Committee could not
[Page 203]
1 [Redacted]
2 You see the text of paragraph 14; yes?
3 A. Yes, I'm looking at it.
4 Q. That is exactly what you told the prosecutor in your
5 first meeting with the general prosecutor in
6 November 2016, isn't it?
7 A. Yes, in comparison to the Special Committee, I am
8 expressing my opinion that the Investment Committee
9 would be weaker in terms of autonomy, independence and
10 impartiality. But I do not know or I am not familiar
11 with the Investment Committee. So in comparison to the
12 Investment Committee, perhaps the Special Committee is
13 at an advantage or has a superiority. This is just my
14 way of stating my general impression or assessment.
15 Q. Well, let's go to exactly what you're recorded to having
16 said to the prosecutor because there your statement was
17 a little more forthright. Let's go together at tab 17.
18 It's {C/459/14}. {C/459K/14}.
19 A. Tab 17, did you say?
20 Q. Yes, page 14. You see your answer to the question in
21 the middle of that page. If you move with me to the
22 third sentence we see that you are reported as having
23 stated to the prosecutor that [Redacted]
24 [Redacted]
25
[Page 202]
1 be guaranteed; yes?
2 A. We had not anticipated at all that the Investment
3 Committee would deliberate this.
4 Q. And the reason why you thought it was inappropriate that
5 they did is because their independence could not be
6 guaranteed; yes?
7 A. In comparison to the Special Committee, it is my opinion
8 that the Investment Committee's independence can be
9 weaker in comparison, and because we had never
10 anticipated that the Investment Committee would be the
11 one deliberating this, I cannot make a determination one
12 way or another whether the deliberation of the
13 Investment Committee has any professional expertise.
14 Q. Let's turn together to your second witness statement,
15 Mr [Redacted] It's at tab 2 of the bundle and I'II ask you to
16 turn to page 9 {E/2/9} of the Opus references,
17 paragraph 14 which you see on your screen.
18 Do you have it?
19 A. What was the number again?
20 Q. Paragraph 14 which you find on page [Redacted]
21 A. Yes, I'm on 14, thank you.
22 Q. We see that what you do here is you quote the record of
23 your statement to the prosecutor where you are reported
24 to have said [Redacted]
25 [Redacted]
[Page 204]
1 [Redacted]
2 Do you wish to change the statement that
3 you made to the prosecutor; yes or no?
4 A. Again, in comparison to the Special Committee, I am
5 expressing my opinion that the Investment Committee
6 would be weaker in terms of autonomy, independence and
7 impartiality But I do not know that well about the
8 Investment Committee. So having said that, this is my
9 assessment in comparison of the Investment Committee to
10 the Special Committee. [Redacted]
11 But I am not in a position to if you are to ask
12 me offer a precise assessment regarding the autonomy,
13 independence and impartiality, because again I do not
14 know that well about the Investment Committee. And
15 perhaps I think the prosecutor intentionally used
16 a strong expression in this part of the statement
17 report. [Redacted]
18 Again, I'm not in a position to offer any
19 assessment. I can, however, talk about my general
20 impression and therefore I think it's correct to say
21 that here I am offering my general impression.
22 Q. Let's turn to the very next page, Mr [Redacted] The final
23 question that you're asked by the prosecutor is [Redacted]
24 [Redacted]
25
[Page 205]
1 [Redacted]
2 [Redacted]
3 and we see that [Redacted]
4 Are you changing your view as to the accuracy of
5 the prosecutor's statement report that you confirmed at
6 the time?
7 A. No, I am not changing the facts as I recall them. I'm
8 only offering my overall assessment in terms of the
9 independence and impartiality of the organisation in
10 question.
11 If you asked me whether I could guarantee accuracy
12 of my general assessment, then I would say I'm not in
13 a position to do so. Therefore I don't believe that
14 there is a clash between the two.
15 Q. I'm asking you whether you confirm or contest the
16 accuracy of the record of what you said to the
17 prosecutor. Are you contesting the accuracy of the
18 record of the statement you made to the prosecutor; yes
19 or no?
20 A. I don't think one can -- I don't think it's possible to
21 offer an assessment on the accuracy of my opinion. My
22 opinion remains unchanged. [Redacted]
23 Q. Let's turn to the very next page in the statement
24 report, the final page {C/459/16}. We see there that
25 your statement report ends with the following words:
[Page 207]
1 statement report sounds to me like an overstatement of
2 what I actually knew if I had been asked to clarify
3 my statement I would have said what I say here now."
4 Do you see that, Mr [Redacted]
5 A. Yes, I see it.
6 Q. If you did not remember your exact words, sir, when you
7 were preparing your second witness statement to this
8 tribunal, how could you say that the prosecutor's
9 statement report was not accurate?
10 A. Regarding the not being accurate or the overstatement,
11 these are impressions of which I have no experience. In
12 other words, the part pertaining to being under the
13 influence of the CIO or the part about being unable to
14 guarantee credibility, these are only my recordings of
15 my impression or my assessment. And that is why my
16 assessment is stated in a very abstract way. I would
17 have made a precise statement if I had known this would
18 become controversial.
19 Regarding whether this is correct, I don't know.
20 But this is not pertaining to facts. This is just
21 a description of my assessment which do not affect or
22 have an influence on the facts in my opinion.
23 Q. It's true, isn't it, Mr [Redacted] that the chairman of your
24 Experts Voting Committee, [Redacted] repeatedly
25 requested that the decision on the merger be referred to
[Page 206]
1 [Redacted]
2 You were asked [Redacted]
3 [Redacted]
4 and we see underneath
5 Do you see that,
6 Mr [Redacted]?
7 A. Yes, I see it. This is a very typical printed
8 expression that you see in a statement report.
9 Q. Is it your evidence to this tribunal that despite the
10 confirmation you gave, the prosecutor misrecorded your
11 answers to him?
12 A. I have never said that.
13 Q. Well, let's turn to your second witness statement at
14 tab 2, paragraph 17. We see in paragraph 17 of your
15 second witness statement it should be now on the
16 screen {E/2/10} you are addressing here, if you could
17 just take a moment to read it [Redacted]
18 A. Yes, I'm reading it.
19 Q. You appear to be addressing here precisely the passage
20 in the prosecutor's recording of your answers that we
21 have just been discussing. We see that in your
22 paragraph 17 you say:
23 "I do not now remember the exact words I said in the
24 interview, but the above statement [the one we have just
25 been looking at] as recorded in the prosecutor's
[Page 208]
1 your Experts Voting Committee. Isn't that so?
2 THE INTERPRETER: Before I translate your question,
3 can I just make a correction regarding my most recent
4 rendition on the transcript.
5 On [draft] line 25 of the previous page, where it
6 says "regarding whether this is correct, I don't know",
7 let me correct it to read "overall, I believe this is
8 correct but this does not pertain to facts. It is only
9 my assessment which do not influence the facts in my
10 opinion".
11 Thank you. Now I will render your question.
12 A. That's what I heard and I believe I recall having
13 received such an email that contained such a request.
14 Q. Let's turn to your second statement report to the
15 Special Prosecutor. This is at tab 18, {C/469/11} for
16 the record.
17 A. Yes. What was the page number again?
18 Q. The page is page 11, {C/469/11}. If it helps, Mr [Redacted]
19 you will see again the pages on the screen.
20 A. Yes, I'm on page 11, thank you.
21 Q. If I could ask you just to remind yourself of the last
22 two questions and answers at the bottom of the page.
23 Here you stated to the Special Prosecutor that [Redacted]
24 [Redacted]
25
[Page 209]
1 [Redacted] yes?
2 A. Can you ask me again, please?
3 Q. Yes. I'm simply asking you to confirm that we're
4 reading the record of your second from the bottom answer
5 correctly that [Redacted]
6 [Redacted]
7 [Redacted]
8 yes?
9 A. That is correct.
10 Q. [Redacted] yes?
11 A. That is correct.
12 Q. And that was entirely inappropriate that press reports
13 would have been released on the same day as the vote;
14 isn't that also right?
15 A. I do not believe I am in a position to assess whether it
16 was appropriate or inappropriate. However, my
17 impression at the time was that for the Investment
18 Committee to decide this, which is a matter that should
19 be put before the Special Committee, was significantly
20 inappropriate, in my assessment at the time.
21 Q. Can we just turn the page from page 11 and read your
22 last answer. It continues on to the top of page 12
23 {C/469/12} where we see that [Redacted]
24 [Redacted]
[Page 211]
1 [Redacted]
2 [Redacted]
3 I'll invite the interpreter to simply ask the
4 witness to read that answer and then I'll ask my
5 question. Not out loud, but ask him simply to read the
6 answer.
7 A. I have read it.
8 Q. Is it still your view, Mr [Redacted] that [Redacted]
9 [Redacted] yes or no?
10 A. That is correct.
11 Q. Let's turn to some communications that were sent by your
12 chairman at this time to others relevant to this
13 dialogue. The first one is at tab 15, at {C/427/1}.
14 Take a moment, sir, to just familiarise with this
15 document. You will see your name mentioned in it.
16 A. I'm afraid I don't have the Korean version in my bundle.
17 But in any case I'm looking at the Korean version on the
18 screen. I see my name, yes.
19 Q. This is just to locate ourselves, this is an email that
20 the chairman of the Experts Voting Committee,
21 [Redacted] you see his name at the top sent at
22 12.31 am on 10 July 2015. We see that it is sent to the
23 joint administrative secretaries of the committee,
24 [Redacted] are the director at the Ministry of
25
[Page 210]
1 [Redacted]
2 Can you explain to us why you and your colleagues
3 were angry?
4 A. From 10 July up to 14 July at the time the chairman of
5 the committee engaged in a lot of dialogue with myself
6 over the phone. At the time the chairman told me a lot
7 about the conversations he had had over the phone with
8 other members of the committee.
9 And it was felt at the time that something that
10 should have been deliberated by the Special Committee on
11 Exercise of Voting Rights had instead been deliberated
12 by the Investment Committee.
13 So whether you call it the rightful authority or the
14 rightful work that should that belongs to the Special
15 Committee, we felt as if someone had suddenly taken that
16 away from us. So that is why many members, including
17 myself, were angry.
18 Q. And if we continue to read the end of your answer to
19 that question at the top of page 12, we see that you
20 say, and I'll invite you to read this to yourself in
21 Korean: [Redacted]
22 [Redacted]
23 [Redacted]
24 [Redacted]
25
[Page 212]
1 Health and Welfare and Chief Investment Officer [Redacted]
2 We also see copied the other members of the committee
3 and we see, Mr [Redacted] that the penultimate name is member
4 [Redacted] you; do you see that?
5 A. Yes, I see it.
6 Q. Just to situate ourselves in time, this was very late in
7 the night before very early of the morning of 10 July
8 when the Investment Committee met to decide the merger
9 vote. Do you remember this communication being sent,
10 Mr [Redacted]?
11 A. I recall that he had discussed this the draft of this
12 email with me and I recall having received it.
13 Q. So you were in a position to comment on the draft of
14 this email before it was sent; have I understood
15 correctly?
16 A. Among the committee members I was the only one with
17 legal expertise, and because the chairman of the
18 committee had determined that this was a legal issue, he
19 had sent the draft of this email to myself which
20 I reviewed and fine-tuned and made some adjustments in
21 terms of the expression.
22 Q. Thank you. Let's turn our attention to the second
23 paragraph of this letter.
24 A. Yes, I'm looking at it.
25 Q. If I could ask you just to make sure you're familiar
[Page 213]
1 again with it.
2 A. Yes, I looked at it.
3 Q. We see that the third line down, the chairman says in
4 this communication that you reviewed and commented on:
5 [Redacted]
6 [Redacted]
7 [Redacted]
8 [Redacted]
9 [Redacted]
10 [Redacted]
11 And then we see
12 [Redacted]
13 Have I understood correctly that you reviewed and agreed
14 with that language before it was sent?
15 A. That is correct.
16 MR PARTASIDES: Mr Chairman, I have one more document that
17 I will take the witness to this evening and then, I'm
18 grateful for your indulgence, we can end for today.
19 The one more document I would like to take you to,
20 Mr [Redacted] is at tab 16. This is {C/429/1}, and hopefully
21 you will have the Korean version in your bundle for this
22 document, Mr [Redacted]
23 A. Yes, I have it. I'm looking at it.
24 Q. So this is a letter written on 11 July by Chairman [Redacted]
25
[Page 215]
1 Do you see that?
2 A. Yes, I see it.
3 Q. And if we turn to the next page, page 3 of the letter at
4 the top {C/429/3}, we see the chairman convening
5 a meeting of the Experts Voting Committee to take place
6 the very following Tuesday on 14 July 2015; yes?
7 A. Yes. I see it.
8 Q. And this is a communication, as I have understood it,
9 that you prepared the first draft of; yes?
10 A. That is correct.
11 Q. Let's finally, Mr [Redacted] just refer back to your first
12 witness statement. This is your tab 1 in your bundle,
13 and I'm going to refer you to paragraph 24. {E/1/9}
14 A. Yes, I see it.
15 Q. You tell us in the final sentence of your paragraph
16 that:
17 "This was the first and only time I had known the
18 Special Committee to convene a meeting without the NPS
19 Investment Committee's referral of an agenda item to the
20 Special Committee."
21 So this was an exceptional event, Mr [Redacted] is that
22 right?
23 A. Yes, I agree with the assessment that it was
24 exceptional.
25 Q. And it was an exceptional convening of the meeting
[Page 214]
1 again to the joint administrative secretaries, but also
2 to the members of your Experts Voting Committee. We see
3 your name on the third line at the top, [Redacted]
4 It is a letter in which on behalf of your committee
5 Chairman [Redacted] is complaining in strong terms about the
6 fact that the decision had not been referred to your
7 committee; yes?
8 A. That is correct.
9 Q. Was this communication passed to you again in draft,
10 Mr [Redacted], before it was dispatched to its recipients in
11 the same way as the last communication we saw?
12 A. In fact this document was one for which Chairman [Redacted] had
13 asked me to prepare the draft. So I recall having
14 prepared the draft upon his request.
15 Q. Thank you. If we focus on the second paragraph of this
16 letter, he recalls, we see in the first sentence, that
17 he had found it's the third line of the second
18 paragraph he had found that this would be a difficult
19 decision for the Investment Committee to make itself; do
20 you see that?
21 A. Yes, I see it.
22 Q. And if we turn the page to the third paragraph, having
23 described the events of 10 July, he ends by saying
24 {C/429/2}: I find this extremely inappropriate, this
25 decision by the Investment Committee.
[Page 216]
1 because the circumstances that you were faced with were
2 truly exceptional; yes?
3 A. I believe overall one can believe that, yes.
4 MR PARTASIDES: Thank you, Mr [Redacted] Mr Chairman, that
5 concludes the cross-examination for this evening, but we
6 have some more subjects to discuss with Mr [Redacted] tomorrow
7 morning.
8 THE PRESIDENT: Okay. Thank you very much.
9 Mr [Redacted] I need to remind you that you cannot
10 because your examination will continue tomorrow morning,
11 you should not discuss your evidence with anybody, in
12 particular counsel or anybody else.
13 THE WITNESS: I understand, Mr President.
14 THE PRESIDENT: Thank you very much. We will resume
15 tomorrow morning at 8 o'clock.
16 (6.00 pm)
17 (The hearing adjourned until Thursday, 18 November 2021 at
18 8.00 am)
19
20
21
22
23
24
25
[Page 217]
PAGE
1
Housekeeping
MR JAMES NICHOLAS BARRY SMITH ....................................4
(continued)
Cross-examination by MR LINGARD ....................................4
(continued)
Questions from THE TRIBUNAL ....................................78
Re-examination by MR PARTASIDES ....................................79
Further cross-examination by MR LINGARD ....95
Further questions from THE TRIBUNAL ....................................97
[Redacted] (called) ....................................117
Examination-in-chief by MR PARTASIDES. ......118
Cross-examination by MS TAN ....................................121
Questions from THE TRIBUNAL ....................................132
[Page 219]
[Redacted] (called) ....................................133
Examination-in-chief by MR CONSEDINE ....................................136
Questions from THE TRIBUNAL ....................................159
MR [Redacted] (called) ....................................163
Cross-examination by MR PARTASIDES ....................................165