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IN THE MATTER OF AN ARBITRATION
BEFORE A TRIBUNAL CONSTITUTED IN ACCORDANCE WITH
THE FREE TRADE AGREEMENT BETWEEN THE REPUBLIC OF KOREA AND THE
UNITED STATES OF AMERICA, DATED 30 JUNE 2007

– and –

THE ARBITRATION RULES OF THE UNITED NATIONS COMMISSION
ON INTERNATIONAL TRADE LAW, 1976

PCA CASE N° 2018-55

– between –

1. MASON CAPITAL L.P. (U.S.A.)
2. MASON MANAGEMENT LLC (U.S.A.)
(“Claimants”)

– and –

REPUBLIC OF KOREA
(“Respondent”, and together with Claimants, the “Parties”)

FINAL AWARD

The Arbitral Tribunal
Professor Dr. Klaus Sachs (Presiding Arbitrator)
The Rt. Hon. Dame Elizabeth Gloster
Professor Pierre Mayer

Registry
Dr. Levent Sabanogullari
Permanent Court of Arbitration

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GLOSSARY OF DEFINED TERMS AND ABBREVIATIONS

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DRAMATIS PERSONE

Blue House and the Ministry of Health and Welfare (MHW)

Mason

National Pension Service (NPS)

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Samsung Group

Others

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I. INTRODUCTION AND PARTIES

1. The claimants in this arbitration are Mason Capital L.P. and Mason Management LLC (collectively referred to as “Claimants”), two companies incorporated under the laws of the State of Delaware, the United States of America, with their registered office at 251 Little Falls Drive, Wilmington, DE 19808, U.S.A.

2. Claimants are represented in these proceedings by Ms. Sophie J. Lamb KC, Mr. Samuel M. Pape, and Ms. Alice Zhou of Latham & Watkins LLP, 99 Bishopsgate, London EC2M 3XF, United Kingdom, Ms. Lilia B. Vazova and Ms. Sarah Burack of Latham & Watkins LLP, 1271 Avenue of the Americas, New York, NY 10020, U.S.A.,, Mr. Wonsuk (Steve) Kang of Latham & Watkins LLP, 29F One IFC, 10 Gukjegeumyung-ro Yeongdeungpo-gu, Seoul 07326, Republic of Korea, and Mr. Beomsu Kim and Ms. Woo Ji Kim of Baker McKenzie & KL Partners Joint Venture Law Firm (“BMKL”, formerly KL Partners), 17th Floor, East Wing, Signature Tower, 100 Cheonggyecheon-ro, Jung-gu, Seoul 04542, Republic of Korea.

3. The respondent is the Republic of Korea (“Respondent” or “Korea”).

4. Respondent is represented in these proceedings by Mr. Paul Friedland, Mr. Damien Nyer, Mr. Sven Volkmer, Mr. Surya Gopalan of White & Case LLP, 1221 Avenue of the Americas, New York 10020-1095, U.S.A., Mr. Moon Sung Lee, Mr. Sanghoon Han, Mr. Joon Won Lee, Mr. Han-Earl Woo, Mr. Minjae Yoo, Ms. Yoo Lim Oh, Ms. Suejin Ahn of Lee & Ko, Hanjin Building, 63 Namdaemun-ro, Jung-gu, Seoul 04532, Republic of Korea.

5. A dispute has arisen between Claimants and Respondent concerning Claimants’ investment in Samsung C&T Corporation (“SC&T”) and Samsung Electronics, Inc. (“SEC”), two publicly listed Korean companies that form part of the Samsung group of companies (the “Samsung Group").¹ According to Claimants, Korean government officials improperly and illegally manipulated the SC&T shareholder vote to approve the merger (the “Merger”) of SC&T with Cheil Industries, Inc. (“Cheil") at an undervalue to SC&T shareholders. These actions, Claimants submit, amount to violations of the minimum standard of treatment and national treatment standard under the Free Trade Agreement between the Republic of Korea and the United States of America, signed on 30 June 2007 and entered into force on 15 March 2012 (the “FTA” or

¹ Notice of Arbitration and Statement of Claim, 13 September 2018, ¶ 2. ↩

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“Treaty”), and caused damages to Claimants.² Respondent denies Claimants’ allegations as to the violations of the FTA and damages in their entirety.³

6. Having ruled previously on certain preliminary matters raised by Respondent, the Tribunal now considers the additional jurisdictional objections raised by Respondent and the merits of the claims raised by Claimants.

II. PROCEDURAL HISTORY

7. The Decision on Respondent’s Preliminary Objections recounts in detail the procedural history from the commencement of the arbitration until the date on which that decision was issued. In this Section, the Tribunal recalls only the key procedural details from the early phase of the proceedings and describes all developments since December 2019.

A. Commencement of the arbitration and constitution of the Tribunal

8. On 7 June 2018, Claimants served upon the Government of the Republic of Korea a Notice of Intent to bring arbitration proceedings against the Republic of Korea pursuant to Article 11.16.2 of the FTA.⁴

9. On 13 September 2018, Claimants filed the Notice of Arbitration and Statement of Claim pursuant to Article 3(1) of the United Nations Commission for International Trade Law Arbitration Rules, 1976 (the “UNCITRAL Rules”) and Article 11.16.3 of the FTA.

10. On 13 September 2018, Claimants filed their Notice of Arbitration and Statement of Claim, with supporting evidence. In the Notice of Arbitration and Statement of Claim, Claimants appointed The Rt. Hon. Dame Elizabeth Gloster, a national of the United Kingdom, as the first arbitrator. Dame Elizabeth’s contact details are One Essex Court, Temple, London EC4Y 9AR, United Kingdom.

11. In its Response to Notice of Arbitration and Statement of Claim dated 12 October 2018, Respondent agreed to the application of the 1976 UNCITRAL Rules and appointed Professor Pierre Mayer, a French national, as the second arbitrator. Professor Mayer’s contact details are 20 Rue des Pyramides, Paris 75001, France.

² Notice of Arbitration and Statement of Claim, ¶¶ 3-6, 64, 74, 81. ↩

³ Memorial on Preliminary Objections, 25 January 2019 (the “Memorial”), ¶ 3. ↩

⁴ FTA [CLA-23]. ↩

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12. On 11 December 2018, the Parties, pursuant to Article 11.19.1 of the FTA, appointed Professor Dr. Klaus Sachs, a German national, as the presiding arbitrator. Professor Sachs’ contact details are CMS Hasche Sigle, Nymphenburger Straße 12, 80335 Munich, Germany.

13. On 13 December 2018, the Parties agreed to the administration of the proceedings by the Permanent Court of Arbitration (the “PCA”). The PCA accepted to act as registry on 14 December 2018.

14. On 22 December 2018, the PCA, acting on behalf of the Tribunal, circulated drafts of the Terms of Appointment and Procedural Order No. 1 for the Parties’ review and comments.

15. On 19 February 2019, a first procedural meeting was held via telephone conference in which counsel and representatives for both Parties, all members of the Tribunal, the Assistant to the Tribunal, and the PCA participated.

16. On 25 February 2019, having considered the Parties’ comments, the Tribunal issued its Terms of Appointment, signed by the Presiding Arbitrator, which, inter alia, fixed Singapore as the place of arbitration (legal seat) pursuant to the Parties’ agreement, set out rules concerning the language of the arbitration and translations, and approved the appointment of Mr. Marcus Weiler as Assistant to the Tribunal. A final version of the Terms of Appointment signed by all Parties and each member of the Tribunal was circulated on 11 March 2019.

B. Determination of Respondent’s Preliminary Objections

17. On 18 and 19 January 2019, the Parties jointly submitted a proposed intermediate timetable to the Tribunal, pursuant to which Respondent was to file its preliminary objections under Articles 11.20.6 and 11.20.7 of the FTA, together with a proposed procedural timetable for the preliminary objections phase by 25 January 2019, and the Parties were to revert to the Tribunal with an agreed timetable for the preliminary objections or, in case of disagreement, with separate proposed timetables. On 21 January 2019, the Tribunal confirmed that the proposed intermediate timetable was acceptable.

18. Following an extension request which was granted by the Tribunal, on 13 February 2019, the Parties reverted to the Tribunal separately with their observations on the appropriate process for determining Respondent’s preliminary objections and the procedural calendar.

19. Having obtained prior leave, on 15 February 2019, Respondent submitted further observations on Claimants’ characterization of certain legal authorities cited in Claimants’ submission of 13 February 2019.

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20. During the first procedural meeting on 19 February 2019, as recorded in the Tribunal’s letter dated 26 February 2019, the Parties and the Tribunal agreed on a tentative schedule for the determination of Respondent’s preliminary objections in deviation from the time limits set forth in Article 11.20.7 of the FTA. The tentative schedule was subject to the Parties’ subsequent agreement or a decision by the Tribunal to this effect.

21. On 25 February 2019, the Tribunal issued Procedural Order No. 1, which set out the rules of procedure governing this arbitration.

22. On 28 February and 4 March 2019, Claimants and Respondent, respectively, confirmed their agreement to the timetable set out in the Tribunal’s letter of 26 February 2019 and provided further comments on the admissibility of a further separate jurisdictional phase subsequent to the preliminary objections phase.

23. On 5 March 2019, the Tribunal issued Procedural Order No. 2, which established the procedural calendar for the determination of Respondent’s preliminary objections, as agreed by the Parties at the first procedural meeting and confirmed by the Parties’ letters of 28 February and 4 March 2019. The Tribunal also reserved its position as to the admissibility of another separate jurisdictional phase until such time as a request for another jurisdictional phase were made.

24. On 25 January 2019, Respondent submitted its Memorial on Preliminary Objections, with supporting evidence and a proposed calendar for the preliminary objections phase.

25. On 19 April 2019, Claimants filed their Counter-Memorial on Preliminary Objections, with supporting evidence.

26. On 28 June 2019, Respondent filed its Reply on Preliminary Objections, with supporting evidence.

27. Further to a joint request from the Parties, on 30 August 2019, the Tribunal issued Procedural Order No. 3 in which it adopted a revised procedural calendar.

28. On 6 September 2019, pursuant to Procedural Order No. 3, Claimants submitted witness statements and expert reports in anticipation of Claimants’ Rejoinder on Preliminary Objections, excluding accompanying documents.

29. On 11 September 2019, Claimants filed their Rejoinder on Preliminary Objections, with supporting evidence.

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30. On 26 September 2019, Respondent sought leave to introduce three new Korean legal authorities into the record. Upon the Tribunal’s invitation to comment, Claimants objected to Respondent’s request by letter dated 27 September 2019. On 28 September 2019, the Tribunal admitted the legal authorities into the record as exhibits R-23, R-24, and R-25.

31. On 16 September 2019, each side submitted a final list of fact and expert witnesses it wished to cross-examine at the hearing on preliminary objections.

32. On 24 September 2019, a pre-hearing conference call was held in which counsel and representatives for the Parties, all members of the Tribunal, the Assistant to the Tribunal and the PCA participated.

33. The hearing on Respondent’s preliminary objections (the “Hearing on Preliminary Objections”) was held at the New York International Arbitration Center, 150 East 42nd Street, New York, NY 10017, U.S.A., from 2 to 4 October 2019. The following persons attended the hearing:

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34. At the Hearing on Preliminary Objections, the following fact and expert witnesses gave evidence for Claimants and were cross-examined by Respondent’s counsel in accordance with the procedure set out in Procedural Order No. 1 and agreed at the pre-hearing conference call: Mr. Kenneth Garschina and Mr. Derek Satzinger of Mason Capital, Mr. Rolf Lindsay of Walkers and Professor Jae Yeol Kwon of Kyung Hee University School of Law.

35. At the Hearing on Preliminary Objections, the following expert witnesses gave evidence for Respondent and were cross-examined by Claimants’ counsel in accordance with the procedure set out in Procedural Order No. 1 and agreed at the pre-hearing conference call: Ms. Rachael Reynolds of Ogier and Professor Hyeok-Joon Rho of Seoul National University School of Law.

36. At the Hearing on Preliminary Objections, as recorded in the Tribunal’s letter of 8 August 2019, the Tribunal and the Parties agreed that the Parties would not submit any post-hearing briefs unless the Tribunal seeks further clarifications on specific issues from them. The Tribunal decided that it would not need any further clarifications from the Parties.

37. On 22 December 2019, the Tribunal notified the Parties that while the Tribunal had rendered and signed its Decision on Respondent’s Preliminary Objections, it intended to defer the issuance of the Decision until the Korean translation became available by the end of January 2020, in

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accordance with the language requirements of Section 8.2 of the Terms of Appointment. The Tribunal invited the Parties to confer and seek agreement on whether to deviate from Section 8.2 of the Terms of Appointment, such that the Parties would obtain the Decision earlier, with the Korean translation to follow in due course.

38. On 24 January 2020, the Tribunal circulated to the Parties its Decision on Respondent’s Preliminary Objections dated 22 December 2019, in English and Korean. In the Decision, the Tribunal decided as follows:

311. For the reasons set out above, the Tribunal:

(a) declares that the General Partner owned and controlled the Samsung Shares and made an investment in accordance with Article 11.28 of the FTA; accordingly rejects Respondent’s request for a declaration that the Tribunal lacks jurisdiction over the General Partner’s claim on the basis that: (i) the General Partner has not made an investment in accordance with Article 11.28 of the FTA and/or (ii) the General Partner did not own or control the Samsung Shares; and rejects Respondent’s request to dismiss all of the claims brought by the General Partner for that reason;

(b) rejects Respondent’s application to dismiss, at this stage of the proceedings, the General Partner’s claim for losses incurred by the Cayman Fund and the Limited Partner on the basis that the General Partner lacks standing to submit claims on behalf of third parties under Article 11.16.1 of the FTA;

(c) rejects Respondent’s request to dismiss the General Partner’s claim for losses incurred by the Cayman Fund and the Limited Partner on the basis that the General Partner’s claim in respect of such portion is, as a matter of law, not a claim for which an award in favor of the General Partner may be made under Article 11.26 of the FTA;

(d) rejects Respondent’s request for a declaration that the General Partner can claim damages only to the extent of its own Partnership Interest in 2015; (e) rejects Claimants’ application for a declaration at this stage of the proceedings that the General Partner’s claim is admissible and that the Tribunal has jurisdiction over that claim;

(f) reserves its decision on the costs of this preliminary phase of the arbitration for the final award.

C. Determination of the procedural calendar for the next phase

39. On 24 January 2020, the Tribunal invited the Parties to confer and seek agreement on the procedural calendar for the next phase of the proceedings.

40. On 14 February 2020, the Parties, informing that they were continuing to confer with a view to reaching an agreement upon a procedural calendar for the next phase of the proceedings, requested that the Tribunal defer the submission of procedural calendar(s) to 21 February 2021 and indicate its availability for a two-week hearing between October and December 2021.

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41. On 17 February 2020, the Tribunal granted the Parties’ request that the deadline for the submission of proposed procedural calendar(s) be deferred to 21 February 2020.

42. On 18 February 2020, the Tribunal informed the Parties of its availability for a two-week hearing between October and December 2021.

43. On 21 February 2021, the Parties proposed to further defer the submission of proposed procedural calendar(s) to 28 February 2020. The Tribunal accepted the Parties’ proposal on 24 February 2020.

44. On 28 February 2020, the Parties submitted a joint proposal to the Tribunal regarding the procedural calendar for the next phase of the proceedings. In the joint proposal, Claimants reserved the right to submit a Statement of Rejoinder on Objections on Jurisdiction, in the event any are raised in the Statement of Defense.

45. On 9 March 2020, the Tribunal proposed to amend certain deadlines in the Parties’ proposed procedural calendar submitted on 28 February 2020.

46. On 10 and 12 March 2020, Respondent and Claimants, respectively, confirmed their agreement with the Tribunal’s proposed amendments to the procedural calendar. In addition, Claimants reserved their right to apply for an extension of the envisaged date for the submission of their Statement of Rejoinder on Objections to Jurisdiction.

47. On 12 March 2020, the Tribunal issued Procedural Order No. 4, establishing the procedural calendar of the next phase of the proceedings.

D. Submission of the Parties’ first-round written submissions; Document production; Non-disputing Party submission by the United States

48. On 12 June 2020, Claimants filed their Amended Statement of Claim, with supporting evidence.

49. On 30 October 2020, Respondent filed its Statement of Defense, with supporting evidence.

50. On 14 December 2020, the Parties informed the Tribunal of their agreement to postpone the deadline for the submission of their outstanding requests for document production set forth in Procedural Order No. 4 to 18 December 2020. The Tribunal approved the Parties’ agreement on the same day.

51. On 18 December 2020, the Parties respectively submitted their document production requests in respect of which a decision by the Tribunal was required.

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52. On 15 January 2021, the Tribunal issued Procedural Order No. 5, setting out the Tribunal’s decision regarding the Parties’ disputed requests for the production of documents.

53. On 1 February 2021, in accordance with Article 11.20.2 of the FTA, the United States of America (the “United States” or the “U.S.”) filed a non-disputing Party submission (the “U.S. Submission”).

54. On 4 February 2021, the Parties requested the Tribunal’s approval of an extension of time for (i) the voluntary and involuntary document production from 1 February 2021 to 18 February 2021 and (ii) Claimants’ Statement of Reply and Defense to Objections to Jurisdiction (and observations on the U.S. Submission) from 5 April 2021 to 9 April 2021. The Tribunal approved the Parties’ proposed amendments to the procedural timetable on the same day.

55. On 23 February 2021, Respondent requested that the Tribunal relieve its document production obligations under Procedural Order No. 5 insofar as it concerns Korea’s current inability to produce evidence yet to be adduced by the Prosecutor’s Office in the pending case against Mr. Lee Jae-yong (“JY Lee”).

56. On 1 March 2021, upon the Tribunal’s invitation, Claimants provided their comments on Respondent’s request of 23 February 2021, requesting that the Tribunal deny Respondent’s request.

57. On 2 March 2021, the Tribunal issued Procedural Order No. 6, denying Respondent’s request for relief from its document productions obligations under Procedural Order No. 5 and ordering Respondent to produce the requested documents by 12 March 2021.

E. Further written submissions and the timing of the hearing

58. On 6 April 2021, Claimants informed the Tribunal that the Parties were considering making a joint request for extension of the schedule for filing Claimants’ Statement of Reply and Defense to Objections to Jurisdiction, and requested that the Tribunal confirm its availability for hearing dates in the first quarter of 2022 in the event that the current October 2021 hearing dates needed to be released.

59. On 7 April 2021, the Tribunal informed the Parties of its availability for a 10-day hearing to be held during the first quarter of 2022.

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60. On 8 April 2021, Claimants requested that the Tribunal grant a three-week extension of the deadline for filing Claimants’ Statement of Reply and Defense to Objections to Jurisdiction, but keep all other deadlines as scheduled and maintain the October 2021 hearing dates.

61. On 13 April 2021, Respondent requested that the Tribunal deny Claimants’ request of 8 April 2021, release the October 2021 hearing dates, and direct the Parties to agree on dates for a hearing to be held in the first quarter of 2022.

62. On 14 April 2021, Claimants proposed in the alternative that they limit their request for extension and modify the schedule for submission of the Parties’ Rejoinders in order to maintain the October 2021 hearing dates.

63. On 15 April 2021, in light of Claimants’ request to vary the time limits for the filing of the Parties’ submissions, the Tribunal proposed two options for modifying the procedural calendar and requested the Parties to confer with a view to reaching an agreement on one of the two options.

64. On 19 April 2021, the Parties confirmed their agreement with one of the Tribunal’s proposed amendments to the procedural calendar, subject to certain conditions.

65. On 21 April 2021, the Tribunal issued Procedural Order No. 7, revising the procedural calendar as agreed by the Parties, including, inter alia, that, after consulting with the Parties, the Tribunal would decide by 13 August 2021 whether the hearing would proceed on 9 to 16 October 2021.

66. On 23 April 2021, Claimants filed their Statement of Reply and Defense to Objections to Jurisdiction (the “Reply”), with supporting evidence.

67. On 16 August 2021, the Tribunal issued Procedural Order No. 8, vacating the October 2021 hearing dates in light of the Parties’ agreement due to the ongoing COVID-19 health concerns and travel restrictions and ordering that the hearing shall instead take place from 19 to 26 March 2022. The Tribunal further invited the Parties to confer with each other regarding hearing logistics and inform the Tribunal of the outcome of their discussions by 10 January 2022.

68. Also on 16 August 2021, Respondent filed its Statement of Rejoinder and Reply on Objections to Jurisdiction (the “Rejoinder”), with supporting evidence.

69. On 14 September 2021, the Tribunal issued Procedural Order No. 9, amending the procedural calendar as agreed by the Parties, which extended the time limit for Claimants to file their Statement of Rejoinder on Objections to Jurisdiction to 6 October 2021 and released certain pre-hearing steps envisaged in Procedural Order No. 7.

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70. On 6 October 2021, Claimants filed their Statement of Rejoinder on Objections to Jurisdiction (the “Rejoinder on Objections to Jurisdiction”), with supporting evidence.

71. On 6 January 2022, Claimants on behalf of both Parties advised the Tribunal, inter alia, that they wished to proceed with an in-person hearing in New York and that they would confirm the final hearing arrangements to the Tribunal by 15 February 2022.

72. On 7 January 2022, the Tribunal, noting its concern with the evolving COVID-19 pandemic, requested that the Parties consider in their discussions leading up to their joint communication regarding the final hearing arrangements on 15 February 2022 the possibility that the hearing may have be conducted in a hybrid or fully remote format.

73. On 3 February 2022, further to Claimants’ communication of 6 January 2022, the Parties proposed that the hearing scheduled from 19 to 26 March 2022 proceed in-person at the New York International Arbitration Center, New York and, alternatively, in remote format, with potentially shorter hearing days to accommodate European and U.S. time zones, in the event that further travel or social restrictions in advance of the hearing render an in-person hearing impracticable. As for the remaining procedural steps, the Parties proposed that (i) each Party submit a list of witnesses and experts to be cross-examined by 18 February 2022; (ii) the pre-hearing conference be held on 4 March 2022; and (iii) the Parties confer and seek to agree upon the terms of a procedural order addressing the remaining procedural issues in advance of the pre-hearing conference.

74. On 7 February 2022, having deliberated on the modus operandi of the hearing in light of the Parties’ views, the Tribunal determined that the hearing would proceed in-person at the New York International Arbitration Center, New York, from 19 to 26 March 2022 as scheduled. The Tribunal noted that the only “hybrid” variation would be that, while Professor Sachs would participate in-person, Dame Elizabeth and Professor Mayer would participate remotely. As for the remaining procedural steps, the Tribunal (i) confirmed the date of the notification of the witnesses and experts to be cross-examined as agreed by the Parties; (ii) invited the Parties to confirm their availability on 9 March 2022 for a pre-hearing videoconference by 14 February 2022; and (iii) invited the Parties to submit a consolidated draft of a procedural order setting out the Parties’ positions on any outstanding areas of disagreement regarding the conduct of the hearing by 28 February 2022.

75. On 14 February 2022, the Parties respectively confirmed their availability for a pre-hearing conference on 9 March 2022.

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76. On 18 February 2022, each side submitted a final list of fact and expert witnesses it wished to cross-examine at the hearing.

77. On 28 February 2022, the Parties submitted a draft Procedural Order No. 10 on hearing arrangements and an agreed agenda for the pre-hearing conference.

78. On 4 March 2022, pursuant to their agreement, the Parties respectively submitted additional supporting evidence.

79. On 9 March 2022, a pre-hearing videoconference was held in which counsel and representatives for the Parties, all members of the Tribunal, the Assistant to the Tribunal and the PCA participated.

80. Later on the same date, the Tribunal issued Procedural Order No. 10 regarding hearing arrangements.

81. On 14 March 2022, pursuant to the Parties’ agreement, Claimants submitted further supporting evidence to which Respondent did not object.

F. Hearing

82. Between 21-26 March 2022, a hearing was held at the New York International Arbitration Center, 620 8th Avenue, New York, NY 10018, United States of America. The following persons attended the hearing:

Arbitral Tribunal
Professor Dr. Klaus Sachs (Presiding Arbitrator)
The Rt. Hon. Dame Elizabeth Gloster (attending remotely)
Professor Pierre Mayer (attending remotely)

Assistant to the Tribunal
Mr. Marcus Weiler

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Permanent Court of Arbitration
Dr. Levent Sabanogullari
Ms. Jinyoung Seok

Court Reporter
Mr. David Kasdan

Interpreter
Ms. Myung Ran Ha

83. At the hearing, the Tribunal and the Parties agreed that the Parties would submit post-hearing briefs on (i) the matters dealt with at the hearing; and (ii) the questions from the Tribunal that was posed to the Parties during the hearing, as well as those that would be communicated separately to the Parties. The Parties agreed that there would be no written rebuttal submissions.

84. At the hearing, it was also agreed that, following the filing of the post-hearing briefs, the Tribunal would determine, in consultation with the Parties, whether half-day oral closing submissions

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would be held by videoconference. The Tribunal indicated that it would be available for such oral closings on 11 May 2022.

G. Oral closing submissions and post-hearing proceedings

85. On 7 April 2022, the Tribunal circulated to the Parties the list of questions to be addressed in the post-hearing briefs.

86. On 20 April 2022, the Parties submitted their proposed corrections to the transcripts of the 21-25 March hearing. The Parties were then invited to propose redactions of protected information in the hearing transcripts by 13 May 2022, prior to the publication of the transcripts.

87. On 29 April 2022, the Parties respectively submitted their post-hearing briefs, with supporting evidence (respectively, “Claimants’ PHB” and “Respondent’s PHB”).

88. On 4 May 2022, having reviewed the Parties’ post-hearing briefs, the Tribunal directed that oral closing submissions would be held by videoconference on 11 May 2022.

89. On 5 May 2022, Claimants asked the Tribunal for any guidance regarding any points or issues on which the Tribunal wished to hear submissions beyond the Parties’ post-hearing briefs during the oral closing submissions.

90. On 6 May 2022, the Tribunal indicated that “it would be most assisted if the Parties would focus their oral closing submission on issues of factual and legal causation, in addition to responding to each other’s post-hearing brief, if they so wish”.

91. On 11 May 2022, oral closing submissions were held by videoconference. The following persons attended:

Arbitral Tribunal
Professor Dr. Klaus Sachs (Presiding Arbitrator)
The Rt. Hon. Dame Elizabeth Gloster
Professor Pierre Mayer

Assistant to the Tribunal
Mr. Marcus Weiler

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Permanent Court of Arbitration
Dr. Levent Sabanogullari
Ms. Jinyoung Seok
Mr. Henry Off

Court Reporter
Mr. David Kasdan

92. On 13 May 2022, Respondent submitted its proposed redactions to the Parties’ respective post-hearing briefs in accordance with paragraph 9.6 of Procedural Order No. 1.

93. On 23 May 2022, following a one-week extension granted by the Tribunal, Respondent submitted their proposed redactions to the hearing transcripts, whereas Claimants confirmed that they did not wish to propose any redactions.

94. Also on 23 May 2022, the Tribunal invited Claimants to indicate whether they objected to Respondent’s designation of information as protected information in the hearing transcripts.

95. On 24 May 2022, Claimants objected to Respondent’s proposed redactions to the hearing transcript and the Parties’ post-hearing briefs.

96. On 30 May 2022, at the Tribunal’s invitation, Respondent submitted its response to Claimants’ objections to the proposed redactions.

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97. On 8 July 2022, the Tribunal issued Procedural Order No. 11, dismissing Claimants’ objections to Respondent’s proposed redactions to the hearing transcripts and the Parties’ post-hearing briefs. Accordingly, the Tribunal decided that Respondent’s proposed redactions complied with Article 11.28 of the Treaty and paragraph 9.4 of Procedural Order No. 1.

98. On 27 July 2022, the Tribunal invited the Parties to confer and seek to agree on the format and timing of costs submissions.

99. On 2 August 2022, the Parties informed the Tribunal of their agreement in respect to the format and timing of the costs submissions, to which the Tribunal approved on the same date.

100. On 26 August 2022, the Parties respectively filed their costs submissions (respectively, “Claimants’ Costs Submissions” and “Respondent’s Costs Submissions”).

101. On 10 October 2023, the Tribunal invited the Parties’ comments on an alternative method of calculating Claimants’ losses with respect to their shares in SC&T and the appropriate USD-KRW exchange rate.

102. On 14 November 2023, Respondent sought leave from the Tribunal to introduce another judgment of the Seoul Central District Court from November 2022 into the record. Claimants objected to this request on 16 November 2023.

103. On 17 November 2023, the Tribunal informed the Parties of its decision to deny Respondent’s request because no exceptional circumstances justifying the late admission of this exhibit had been demonstrated and the request was belated.

104. On 21 November 2023, the Parties submitted their comments in response to the Tribunal’s letter of 10 October 2023 (respectively, “Claimants’ Comments on Quantum” and “Respondent’s Comments on Quantum”).

105. On 30 November 2023, Claimants wrote to the Tribunal in respect of the number of the SC&T shares held by Claimants on 16 July 2015 and confirmed that the Tribunal’s calculation on the basis of the number of shares held as of 16 July 2015 in Claimants’ trading records (Exhibit C-32) was correct.

106. On 7 December 2023, Respondent informed the Tribunal that it had uploaded revised English translations for two judgments of the Seoul Central District Court and two judgments of the Seoul High Court.

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107. On 10 January 2024, the Parties submitted updated cost submissions (respectively, “Claimants’ Updated Costs Submissions” and “Respondent’s Updated Costs Submissions”) and Claimants notified the Tribunal of a change of their representatives.

108. On 15 February 2024, Respondent informed the Tribunal about the issuance of another judgment of the Seoul Central District Court on 5 February 2024 and requested that the Tribunal refrain from closing the proceedings until Respondent had obtained a copy of the judgment and sought leave from the Tribunal to admit it into the record. Claimants opposed this request on 16 February 2024, and Respondent provided further comments on 20 February 2024.

109. Also on 20 February 2024, the Tribunal informed the Parties of its decision to deny the Respondent’s request, because it did not consider the mere fact that a judgment was rendered after the final submissions in this arbitration to constitute exceptional circumstances which could justify the late admission of new documents, and declared the proceedings closed.

III. STATEMENT OF FACTS

110. This section summarizes the factual background of the dispute based on the Parties’ submissions. It is not intended to be exhaustive of all the events and circumstances laid out by the Parties in their submissions nor their diverging views thereon.

A. Main actors

1. Claimants and their affiliates

111. Mason Capital Management LLC, a Delaware limited liability company, is an investment management firm founded in or about January 2002 (the “Investment Manager”).⁵ It manages investments on behalf of a group of other Mason group entities (“Mason Group”), and all employees of Mason group entities are employed by the Investment Manager.⁶

112. According to Claimants, the Investment Manager invests through two different funds:

⁵ Witness Statement of Kenneth Garschina, 19 April 2019, (“First WS Garschina”) [CWS-1], ¶ 2; Certificate of Amendment to Certificate of Formation of Amagansett Capital Management, LLC, 9 January 2002 [C-2]. ↩

⁶ Amended Statement of Claim, ¶ 13; Decision on Respondent’s Preliminary Objections, ¶ 36. ↩

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(a) Mason Capital L.P., a limited partnership organized under the laws of the state of Delaware, United States (the “Domestic Fund”);⁷ and

(b) Mason Capital Master Fund L.P., an exempted limited partnership governed by the Exempted Limited Partnership Law, 2014, of the Cayman Islands (the “Cayman Fund”).⁸

113. Mason Management LLC, a Delaware limited liability company, is the general partner of both the Domestic Fund and the Cayman Fund (the “General Partner”).⁹ The General Partner was founded in or around July 2000 by Messrs. [Redacted] and Kenneth Garschina, two U.S. nationals.¹⁰ The General Partner became the general partner of the Cayman Fund in or around 2009.¹¹ The Cayman Fund became operational at the start of 2010.¹²

114. In addition to the General Partner, the Cayman Fund has a sole limited partner, Mason Capital Ltd. (the “Limited Partner”), an exempted company incorporated under the laws of the Cayman Islands.¹³

115. The relationship between the General Partner and the Limited Partner with respect to the Cayman Fund is governed by the Second Amended and Restated Limited Partnership Agreement dated 1 January 2013 (the “Partnership Agreement”).¹⁴

116. In particular, with respect to the allocation of net profits and net losses, the General Partner was entitled to the following incentive allocation, as provided in Article 4.06(b) of the Partnership Agreement (the “Incentive Allocation”):

⁷ Mason Capital L.P. Formation Certificate (Amendement); Mason Capital L.P. Formation Certificate, 26 July 2000 [C-1]. ↩

⁸ Amended Statement of Claim, ¶ 14; Statement of Defense, ¶¶ 38-39; Decision on Respondent’s Preliminary Objections, ¶ 37. ↩

⁹ Amended Statement of Claim, ¶ 15. ↩

¹⁰ First WS Garschina [CWS-1], ¶ 1; Certificate of Amendment to Certificate of Formation of Reef Management, LLC, 26 July 2000 [C-1]. ↩

¹¹ Second Witness Statement of Derek Satzinger, 6 September 2019 (“Second WS Satzinger”) [CWS-4], ¶ 12. ↩

¹² Second WS Satzinger [CWS-4], ¶ 12. ↩

¹³ First Witness Statement of Derek Satzinger, 11 April 2019 (“First WS Satzinger”) [CWS-2], ¶ 7; First WS Garschina [CWS-1], ¶ 7. ↩

¹⁴ Second Amended and Restated Limited Partnership Agreement, 1 January 2013 (“Partnership Agreement”) [C-30]. See below at Section III.E. ↩

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4.06 Allocation of Net Profits and Net Losses

(b) With respect to each Capital Account of a Limited Partner, as of the end of each Fiscal Year, there shall be allocated to the Capital Account of the General Partner, as its incentive allocation (the “Incentive Allocation”) 20% of:

(i) the Cumulative Net Profits preliminarily allocated to such Capital Account of such Limited Partner pursuant to Section 4.06(a) for such Fiscal Year minus

(x) any management fees paid by the Limited Partner on behalf of the shareholders of the series or sub-series corresponding to such Capital Account for such year, and

(y) any expenses attributable to such series or sub-series of shares that are incurred by the Limited Partner and are not otherwise reflected in the Capital Account balance,

over (ii) the CUNL (as defined below), if any, for such Capital Account as of such Fiscal Year-end.

For the avoidance of doubt, the General Partner will not receive an Incentive Allocation for a Fiscal Year if the calculation in the previous sentence results in a negative number. For the avoidance of further doubt, an Incentive Allocation will be made with respect to a Capital Account for a partial calendar year due to an intra-year contribution, or in the event some or all amounts are voluntarily or mandatorily withdrawn from such Capital Account as of a date other than the end of a Fiscal Year. The General Partner, in its sole discretion, may reduce, waive or grant rebates with respect to the Incentive Allocations for certain Capital Accounts.¹⁵

117. Claimants consider that Respondent mischaracterizes their investment thesis, notably that they make “hit and run” investments with shareholder agitation and litigation.¹⁶ Claimants further deny Respondent’s suggestion that they “piggyback on investments” made by another hedge fund, Elliott Associates L.P. (“Elliott”) by profiting from the volatility generated by Elliott’s activities.¹⁷

¹⁵ Partnership Agreement [C-30], Art. 4.06(b). ↩

¹⁶ Fourth Witness Statement of Kenneth Garschina, 21 April 2021 (“Fourth WS Garschina”) [CWS-7], ¶ 6. See also Statement of Defense, ¶ 42. ↩

¹⁷ Fourth WS Garschina [CWS-7], ¶¶ 6-7. See also Statement of Defense, ¶ 45. ↩

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118. Rather, according to Claimants, they are “value-driver investors[s]”, who principally employ event-driven investment strategy, consisting of “identifying potential events that are likely to improve the value of an investment, making an investment before those events occur, and maintaining the investment after those events, until that expected value materializes”.¹⁸ Claimants’ decision whether to build a position in a particular entity is based on years of “careful research and analysis of company fundamentals, and [their] ideas for how value can be created, not on short-term price fluctuation”.¹⁹ Therefore, Claimants reject Respondent’s assertion that their investment thesis is developed by algorithms tracking price movement.²⁰

119. As there is “no blueprint for Mason’s investment approach”,²¹ the durations of which Mason holds investments vary, lasting “five minutes, a few weeks, or a few months”, or even multiple years.²²

2. Respondent and related entities and individuals

120. The executive office of the President of Korea is known as the Blue House.²³ At the time of the Merger, President Park Guen-hye was the president of Korea (“President Park”).²⁴

121. The Ministry of Health and Welfare of Korea (the “MHW”) is one of the 17 ministries organized under the Korean President,²⁵ which established the National Pension Fund (the “Fund”) in 1988 pursuant to the National Pension Act.²⁶ The Minister of Health and Welfare manages and operates the Fund “to maximize profits for the long-term stability of national pension finances,

¹⁸ First WS Garschina [CWS-1], ¶ 10. See also [Redacted], “Your Guide to the Many Flavors of Quant”, Bloomberg, 24 October 2016 [R-11], pp. 3-4. ↩

¹⁹ Fourth WS Garschina [CWS-7], ¶ 7. ↩

²⁰ Fourth WS Garschina [CWS-7], ¶ 7. See also Statement of Defense, ¶ 41. ↩

²¹ First WS Garschina [CWS-1], ¶ 9. ↩

²² First WS Garschina [CWS-1], ¶ 10. See also Rohde Island Office of the General Treasurer, Hedge Fund Investment Due Diligence Report, Mason Capital, December 2010 [R-3], p. 6. ↩

²³ Statement of Defense, ¶ 17. ↩

²⁴ See Rejoinder and Reply on Objections to Jurisdiction, Annex A, Figure 1. ↩

²⁵ Government Organization Act, 19 November 2014 [CLA-155], Art. 26(1)12; Presidential Decree on the organization of the Ministry of Health and Welfare and its affiliate agencies, 28 July 2020 [R-288], Art. 3. ↩

²⁶ National Pension Act, 1 January 1988 [R-26], Art. 82; Operational Guidelines (revised translation of C-6), 9 June 2015 [R-144], Art. 3(1). ↩

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while investing in businesses to promote welfare of” the subscribers and beneficiaries of the Fund.²⁷

122. The National Pension Fund Operation Committee (the “Fund Operation Committee”) established under the MHW oversees the macro policy decisions relating to the operation of the Fund.²⁸ It is chaired by the Minister of Health and Welfare, and comprises four vice ministers from other ministries, as well as others appointed by the Minister of Health and Welfare.²⁹

123. One of the important function of the Fund Operational Committee is to promulgate and approve (i) the National Pension Fund Operational Guidelines (the “Fund Operational Guidelines”), which set forth the objectives of the Fund’s operation and the appropriate investment policies and strategies for those entrusted with the fiduciary management of the Fund;³⁰ and (ii) the Guidelines on the Exercise of the National Pension Fund Voting Rights (the “Voting Guidelines”), which establish the “standards, methods procedures, and other matters” relating to the exercise of the voting rights of the Fund.³¹

124. Under the Fund Operational Guidelines, the Minister of Health and Welfare has a duty to manage and operate the Fund in accordance with the principles of “[p]rofitability”, “[s]tability”, “[p]ublic benefit”, “[l]iquidity”, and “[m]anagement [i]ndependence”, such that these principles would not be undermined for other purposes.³²

125. At the time of the Merger, the Minister of Health and Welfare was Mr. Moon Hyung-pyo (“Minister Moon”).³³

²⁷ National Pension Act [CLA-157], Art. 102(2); Operational Guidelines (revised translation of C-6), 9 June 2015 [R-144], Art. 3(1). ↩

²⁸ National Pension Act, 31 July 2014 [CLA-157], Art. 103(1); Operational Guidelines (revised translation of C-6), 9 June 2015 [R-144], Art. 5. ↩

²⁹ National Pension Act, 31 July 2014 [CLA-157], Art. 103(2). ↩

³⁰ Operational Guidelines (revised translation of C-6), 9 June 2015 [R-144], Arts. 2, 4. ↩

³¹ Guidelines on the Exercise of the National Pension Fund Voting Rights, 28 February 2014 (“NPS Voting Guidelines”) [R-55], Art. 1. ↩

³² Operational Guidelines (revised translation of C-6), 9 June 2015 [R-144], Art. 4. ↩

³³ See Rejoinder and Reply on Objections to Jurisdiction, Annex, A, Figure 2. ↩

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3. Samsung Group and its affiliates

126. The Samsung Group was founded in 1938 and is the largest Korean chaebol by market value.³⁴ Mr. Kun-hee Park—the son of the founder of the Samsung Group—was the Chairman until his death on 25 October 2020.³⁵

127. Today, the Samsung Group has expanded into diverse sectors, including inter alia electronics, engineering, construction, insurance, pharmaceuticals, shipping, hotels, and fashion.³⁶ Similar to other chaebols, the Samsung Group companies hold shares in each other, without any central management or a holding company.³⁷

128. SC&T was the original enterprise of the Samsung Group at the time of its founding in 1938.³⁸ Its core businesses before the Merger were construction and international trading.³⁹

129. At the time of the Merger, SC&T’s shareholders included other Samsung affiliates (including the Chairman Lee Kun-Hee), domestic institutions, as well as a range of foreign institutional investors.⁴⁰ The largest single investor in SC&T was the National Pension Service of Korea (the “NPS”), holding an 11.21% stake.⁴¹ SC&T also held shares in other publicly-traded companies and several Samsung Group companies, including a 3.51% stake in SEC.⁴²

³⁴ Chaebol is a family-controlled conglomerate, which began operating in a wide array of industries since the end of World War II. See Amended Statement of Claim, ¶ 23; Statement of Defense, ¶ 49. ↩

³⁵ Statement of Defense, ¶ 66; “Lee Kun-hee, who made South Korea’s Samsung a global powerhouse, dies at 78”, Reuters, 25 October 2020 [R-311]. ↩

³⁶ Eleanor Alber, South Korea’s Chaebol Challenge, Council on Foreign Relations, 4 May 2018 [C-104]; “The History of Samsung (1938-Present)”, Lifewire, updated 21 August 2019 [R-274]. ↩

³⁷ Statement of Defense, ¶ 49. The ownership structure of chaebols is typically characterized by a “web of complex cross-shareholdings, often involving a number of circular shareholdings with no clear holding company”. See E. Han Kim & Woochan Kim, Changes in Korean Corporate Governance: A Response to Crisis, 20 Journal of Applied Corporate Finance 47 (Morgan Stanley, 2008), pp. 47, 49 [C-73]. See also Expert Report of Professor Bae, 12 August 2021 (“ER Bae”) [RER-7], Figure 1A, for a diagram of the Samsung Group’s pre-merger structure. ↩

³⁸ SC&T Corporation Press Release, “Merger Between Cheil Industries and Samsung C&T,” 26 May 2015 [R-274]. ↩

³⁹ Expert Report of Dr. Tiago Duarte-Silva, 12 June 2020 (“First ER Duarte-Silva”) [CER-4], ¶ 29; SC&T DART filing, “Report on Main Issues”, 26 May 2015 [R-120], p. 3; SC&T DART filing, “Notice to convene EGM”, 2 July 2015 [R-183]. ↩

⁴⁰ Statement of Defense, ¶ 52 and Table 1. ↩

⁴¹ Seoul High Court, Case No. 2017No1886, Prosecutor v. Moon/Hong, 14 November 2017 [CLA-14], p. 78. ↩

⁴² First ER Duarte-Silva [CER-4], ¶ 39 and table 4; SC&T DART filing, “Public Announcement of Current Status of Large Corporate Groups” 31 August 2015 [R-224]. ↩

[Page 23]

130. Established in 1969, SEC is one of the world’s largest manufacturers of consumer electronics and semiconductors and remains the flagship business of the Samsung Group.⁴³ At the time of the Merger, SEC shareholders included, inter alia, the Lee family (holding a 4.74% stake), SC&T (holding a 3.51% stake), the NPS (holding an 8.19% stake), and other domestic and foreign institutional investors.⁴⁴ JY Lee, the son of the late Mr. Lee Kun-hee, is the Vice Chairman of SEC.⁴⁵

131. Cheil, formerly known as Samsung Everland, was established in 1963, and operated in the construction, leisure, food catering, and fashion sectors.⁴⁶ At the time of the Merger, Cheil was considered as the de facto holding company of the Samsung Group as it was positioned atop of the corporate governance structure of the Samsung Group, holding stakes in other Samsung Group entities.⁴⁷ The Lee family held 42.17% of Cheil’s publicly listed shares, principally through JY Lee’s 23.2% interest.⁴⁸

4. National Pension Service

132. The NPS is a corporation established under the National Pension Act for the purpose of “contribut[ing] to the stabilization of livelihoods and the promotion of national welfare by providing pension benefits in case of old-age, disability or death”.⁴⁹ As the world’s third largest public pension fund, the NPS has over KRW 700 trillion (approximately USD 600 billion) in assets under management.⁵⁰ As of 2019, the NPS’s investment in domestic equities neared

⁴³ “Top 5 Companies in the Global Consumer Electronics and Telcom Products Market by BizVibe”, Business Wire, 13 July 2017 [C-97], p. 2; Rajeshni Naidu-Ghelani, South Korea’s 10 Biggest Companies, CNBC.COM, 23 July 2012 [C-74], p. 16; “Samsung Electronics ranks 18th worldwide in the market cap”, The Korea Post, 12 January 2020 [R-279]. ↩

⁴⁴ Samsung Electronics Co., Ltd., 2014 Business Report for the Year Ended December 31, 2014 [C-76], p. 119; “[Corrected Graphic] Who holds shares in SC&T and SEC?” Newsis, 11 June 2015 [R-148]; The NPSIM, Analysis Regarding the Merger of Cheil Industries and Samsung C&T, 10 July 2015 [R-202], p. 8. See also Amended Statement of Claim, ¶¶ 26, 28. ↩

⁴⁵ See “South Korea’s presidential scandal”, BBC News, 6 April 2018 [R-253]. ↩

⁴⁶ Mirae Asset Securities, “Cheil Industries,” 18 December 2015 [R-227], at 1; Institutional Shareholder Services, Inc., Special Situations Research, Samsung C&T (KNX:000830): Proposed Merger with Cheil Industries (KNX:028260) (“ISS Report”), Analysis, 3 July 2015 [C-9]. ↩

⁴⁷ Mirae Asset Securities, “Cheil Industries,” 18 December 2015 [R-227], p. 1; “Shares in Samsung’s de facto holding group Cheil double on debut”, Financial Times, 18 December 2014 [R-101]. ↩

⁴⁸ Seoul Central District Court, Case No. 2017Gohap34, Prosecutor v. Moon/Hong, 8 June 2017 [CLA-13], pp. 71-73; Cheil Industries – 2015 Q2 – Financial Statements [C-88], p. 169. ↩

⁴⁹ National Pension Act, 31 July 2014 [CLA-157], Art. 1. ↩

⁵⁰ “What Seoul has to offer as financial hub”, The Korea Times, 27 September 2020 [R-297]. ↩

[Page 24]

KRW 123 trillion (approximately USD 105 billion), holding a five or more percent stake in 313 listed companies.⁵¹

133. At the time of the Merger, the NPS held an 11.21% stake in SC&T, an 8.19% stake in SEC, and around a 5% stake in Cheil.⁵²

134. The Parties take different views with respect to the relationship between the NPS and Respondent. Their positions are further set out in detail in Section V.C. below.

a) NPS Investment Management Department

135. The NPS is divided into various departments, with different executive directors in charge.⁵³ The NPS Investment Management Department (the “NPSIM”) is responsible for matters regarding, inter alia, investment strategies, risk management, Fund operation performance reviews, and exercise of voting rights of equities held by the Fund.⁵⁴ The NPSIM is headed by the Chief Investment Officer, who is also the Executive Fund Director.⁵⁵ Mr. Hong Wan-seon was the Chief Investment Officer at the time of the merger (“CIO Hong”).⁵⁶

136. Within the NPSIM, the teams, which are responsible for the NPS’s exercise of voting rights attached to the shares held by the Fund and are relevant to this dispute, are the following:

(a) The Investment Strategy Team, which sits within the Management Strategy Office, manages the administrative aspects of the investment decisions made by the NPSIM through the NPS Investment Committee;⁵⁷

(b) The Responsible Investment Team, which also sits within the Management Strategy Office, manages the process by which the NPSIM, through the NPS Investment

⁵¹ “NPS raises stakes in Korean Inc., giving it more power to influence companies”, Maeil Business News, 10 February 2020 [R-340]. ↩

⁵² NPSIM Strategy Management Strategy Office (Responsible Investment Team), Agenda for Decision: Proposed Exercise of Voting Rights on Domestic Equity Investments, 10 July 2015 [R-200], at 1. ↩

⁵³ NPS Organization Regulations, 19 May 2015 [CLA-159], Annex 1, National Pension Service Organization Chart. ↩

⁵⁴ NPS Organization Regulations, 19 May 2015 [CLA-159], Arts. 6, 15, Annex 3. ↩

⁵⁵ NPS Organization Regulations, 19 May 2015 [CLA-159], Art. 6(2). ↩

⁵⁶ Statement of Defense, ¶ 26. ↩

⁵⁷ Enforcement Decree of the Regulations of the NPSIM Operations, 22 May 2015 [R-113], Annex 1-3, p. 26. ↩

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Committee, deliberates and decides how to exercise the NPS’s voting rights in investment for which the Fund holds a stake of three or more percent;⁵⁸ and

(c) The Research Team, which sits within the Domestic Equity Office, creating investment and trading portfolios in domestic equities, as well as analysing and monitoring the status of such portfolios.⁵⁹

b) Investment Committee

137. The Investment Committee of the NPS is established under the NPSIM to deliberate and decide key matters regarding the operation of the Fund or other matters deemed necessary by the Chair.⁶⁰ Chaired by the CIO of the NPS, the Investment Committee is composed of eleven members, including eight ex officio and standing members, who are the heads of the NPSIM offices and three ad hoc members, who are the heads of the NPSIM teams and are appointed by the CIO.⁶¹ Each member of the Investment Committee is required to have at least eleven years of practical investment experience or equivalent qualifications.⁶²

138. The Investment Committee deliberates and decides how the NPS’s voting rights should be exercised with respect to the equities held by the Fund in accordance with the Fund Operational Guidelines and the Voting Guidelines.⁶³

139. Article 8(2) of the Voting Guidelines provides an exception to this general rule for votes which the Investment Committee finds “difficult”:

⁵⁸ Enforcement Decree of the Regulations of the NPSIM Operations, 22 May 2015 [R-113], Annex 1-3, p. 25; NPS Voting Guidelines [R-55], Art. 8(1). ↩

⁵⁹ Enforcement Decree of the Regulations of the NPSIM Operations, 22 May 2015 [R-113], Art. 3.1. ↩

⁶⁰ National Pension Fund Operational Regulations, 26 May 2015 [RLA-117], Arts. 5(2), 7(2), 33(3), 61. ↩

⁶¹ National Pension Fund Operational Regulations, 26 May 2015 [R-117], Art. 7(1); Enforcement Rules of the National Pension Fund Operational Regulations, 28 December 2011 [CLA-151], Art. 16(1). ↩

⁶² Enforcement Decree of the Regulations of the NPSIM Operations, 22 May 2015 [R-113], p. 24, Attached Table 1-2; Regulations of the NPSIM Operations, 29 December 2014 [R-103], pp. 20-21, Appended Charts 6 and 7. Respondent notes that the only exception is the head of the Investment/Management Support Team, which is a back-office position. See Statement of Defense, fn. 53. ↩

⁶³ NPS Voting Guidelines [R-55], Art. 8(1). Article 40 of the Enforcement Rules of the National Pension Fund Operational Regulations prescribes which officer or committee of the NPS may exercise voting powers, depending on the relative size of the NPS’s stake (as a proportion of the entity’s outstanding shares and of the NPS’s own holdings). For example, if the Fund “holds 1% or more and less than 3% of total outstanding shares, and the proportion of the shares of the Fund’s total holding is less than 0.5%”, then the NPSIM CIO is to exercise the voting rights. See Enforcement Rules of the national Pension Fund Operational Regulations, 28 December 2011 [CLA-151], Art. 40(1). ↩

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For items which the [Investment] Committee finds difficult to choose between an affirmative and a negative vote, the NPSIM may request for a decision to be made by the Special Committee on the Exercise of Voting Rights.⁶⁴

140. Article 17 of the Fund Operational Guidelines also provides, inter alia, that “[w]hilst voting rights shall, in principle, be exercised by the NPS, proposals for which it is difficult for the NPS to determine whether to support or oppose shall be decided on by the Experts Voting Committee for the Exercise of Voting Rights”.⁶⁵

141. The Investment Committee has a duty to exercise the NPS’s voting rights “in good faith for the benefit” of the subscribers and pensioners and in a manner that “increase[s] shareholder value in the long term” under the following principles set forth in the Voting Guidelines:⁶⁶

Article 6 (Fundamental Principles of Exercise of Voting Rights) The standards for exercising voting rights on individual items shall be determined on the basis of the following fundamental principles.

1. If the item does not go against the interests of the fund and does not lead to a decrease in shareholder value, the Fund shall vote in approval.
2. If the item goes against the interests of the fund or decreases shareholder value, the Fund shall vote in opposition.
3. In the event that an item does not fall within the aforementioned categories, the Fund may vote neutrally or abstain.⁶⁷

142. Annex 1 to the Voting Guidelines, which provides detailed standards for the exercise of voting rights of domestic equities held by the Fund, explains that the decrease of the shareholder value must be “[a]ssessed on a case-by-case basis” and that the Fund should have regard to its appraisal rights (and the value of their exercise) under Korean law.⁶⁸

143. According to Respondent, the Voting Guidelines tend to give the members of the Investment Committee wide discretion in their decision-making.⁶⁹

⁶⁴ NPS Voting Guidelines [R-55], Art. 8(2). ↩

⁶⁵ Ministry of Health and Welfare, Guidelines on the Operation of the National Pension Fund, 9 June 2015 [C-6], art. 17(5). ↩

⁶⁶ NPS Voting Guidelines [R-55], Arts. 3, 4. ↩

⁶⁷ NPS Voting Guidelines [R-55], Art. 6. ↩

⁶⁸ NPS Voting Guidelines [R-55], Annex 1. ↩

⁶⁹ Statement of Defense, ¶ 34, relying on The Board of Audit and Inspection Notice, “Internal determination criteria for the exercise of voting rights on stocks deemed inappropriate,” Undated [R-331]. ↩

[Page 27]

5. Special Committee

144. The Special Committee on the Exercise of the Voting Rights (the “Special Committee”, also referred as the “Experts Voting Committee”) was established in 2006 by the MHW under the Fund Operation Committee “for the review of key matters regarding the exercise of voting rights for the shares held by [the Fund]”.⁷⁰ It is composed of nine members, each of whom is appointed by the Fund Operation Committee based on recommendations from different interest groups, such as employers, employees, regional community pension holders, and academia.⁷¹

145. At the time of the Merger, the “functions” of the Special Committee were set out in Article 2 of the Regulations on the Operation of the Special Committee on the Exercise of Voting Rights:

Article 2 (Functions): The Special Committee reviews or determines items below regarding the exercise of voting rights of equities owned by the National Pension Fund and reports the results thereof to the Fund Committee.

1. General principles and specific guidelines on the exercise of voting rights, etc.
2. Records and details of the NPS Investment Management division (NPSIM)’s exercise of voting rights
3. Issues requested by the Chair of the Fund Committee
4. Issues referred by NPSIM due to difficulties in determining whether to vote for or against an agenda
5. Issues of securing effectiveness of exercise of voting rights regarding dividends
6. Any other issue that the Chair of the Special Committee deems necessary.⁷²

146. The Fund Operational Guidelines provided that the Special Committee should examine and decide on matters pertaining to the exercise of voting rights for shares held by the Fund, including: (i) matters for which the NPSIM requests a determination as it find it “difficult” to decide whether to support or oppose them; and (ii) any “other matters which the Chairman of the [Special] Committee deems necessary.⁷³

⁷⁰ Operational Regulations for the National Pension Fund Operation Committee, 29 May 2013 [R-50], Art. 21(1); MHW press release, “NPS officially establishes the ‘Special Committee on the Exercise of Voting Rights’”, 10 March 2006 [R-30], p. 1. ↩

⁷¹ Regulations on the Operation of the Special Committee on the Exercise of Voting Rights, 9 June 2015 [R-145], Art. 3(2); “The composition of the Special Committee – the representative of 21 million people”, Joongang Daily, 25 June 2015 [R-165]. See also NPS Voting Guidelines [R-55], Art. 8(2). ↩

⁷² Regulations on the Operation of the Special Committee on the Exercise of Voting Rights, 9 June 2015 [R-145], Art. 2. ↩

⁷³ Ministry of Health and Welfare, Guidelines on the Operation of the National Pension Fund, 9 June 2015 [C-6], art. 5(5)(4)-(5). ↩

[Page 28]

B. Claimants’ interest and shares in SEC and SC&T

147. Claimants began preparing an investment strategy in regard to a potential investment in the Samsung Group in early 2014.⁷⁴ Claimants became interested in investing in SEC, which they considered the “crown jewel” of the Samsung Group,⁷⁵ as well as SC&T, which held an ownership interest in SEC (together, the “Samsung Shares”).⁷⁶ According to Claimants, their research showed that “listed entities within the Samsung Group had historically traded below their intrinsic value by reason of poor corporate governance, including poor treatment of minority shareholders”, but incoming reforms would “unlock value” for shareholders.⁷⁷

148. The Samsung Group began to change its governance structure in late 2013 and early 2014.⁷⁸ While the precise nature of the restructuring was unknown, the market speculated that the Samsung Group would transition to a holding company structure.⁷⁹ In May 2014, Chairman Lee Kun-Hee, suffered a heart attack which incapacitated him, “shift[ing] the [the market’s] focus ... [to] the Lee family’s ostensible succession plan”.⁸⁰

149. By September 2014, media reports predicted that Cheil—the de facto holding company of the Samsung Group—would merge with SC&T to form a holding company.⁸¹ The announcement of the initial public offering (“IPO”) of Cheil in late October 2014 reinforced the media’s prediction regarding a merger between Cheil and SC&T.⁸² Analysts interpreted Cheil’s IPO to be a signal

⁷⁴ First WS Garschina [CWS-1], ¶¶ 6-7; Email from Kenneth Garschina to [Redacted] et al., 12 May 2014 [C-140]. ↩

⁷⁵ First WS Garschina [CWS-1], ¶¶ 13, 15. ↩

⁷⁶ First WS Garschina [CWS-1], ¶ 18; Second WS Garschina [CWS-3], ¶ 16. ↩

⁷⁷ Amended Statement of Claim, ¶ 22; First WS Garschina [CWS-1], ¶ 15; Second WS Garschina [CWS-3], ¶ 8; see also Statement of Defense, ¶¶ 61, 64-65. See also Transcript of Hearing on the Merits, Day 1, 21 March 2022, pp. 19:6-9, 21:6-12 [Claimants’ Opening Submission]. ↩

⁷⁸ Second WS Garschina [CWS-3], ¶ 8; Meritz Securities CO. Ltd., “Issues of Corproate Governance of the Samsung Group”, 21 May 2014 [R-67], p. 1. ↩

⁷⁹ Hanhwa Investment & Securities, “The meaning of rise in Samsung Life Insurance’ share price and Everland”, 13 June 2013 [R-51], pp. 2-3; Meritz Securities CO. Ltd., “Issues of Corproate Governance of the Samsung Group”, 21 May 2014 [R-67], pp. 15-16. ↩

⁸⁰ Statement of Defense, ¶ 66, referring to Reuters, Lee Kun-Hee, who made South Korea’s Samsung a global powerhouse, dies at 78, 25 October 2020 [R-311]. ↩

⁸¹ See, e.g., “Where is Samsung C&T heading? Lee Jae-yong’s ‘construction,’” Business Watch, 5 September 2014 [R-80]; “Samsung’s ‘restructuring business’ train; when is the last stop?” MoneyS, 16 September 2014 [R-82]. ↩

⁸² Statement of Defense, ¶ 69. ↩

[Page 29]

that major changes to the Samsung Group’s corporate structure were imminent.⁸³ The market also reacted to Cheil’s IPO as the shares of Cheil, as well those of several other Samsung Group companies, increased in price.⁸⁴

150. Claimants also anticipated adoption of additional regulations, based on a prospective change in the Korean government in the next electoral cycle to a reform party, which was proposing actions to address issues with chaebols.⁸⁵ They believed that these changes would lead to improvements in the corporate governance of the Samsung Group, and consequently benefit the investors.⁸⁶

151. Claimants began to invest in SEC in May 2014, when it began to purchase total return swaps over SEC shares.⁸⁷ On 20 May 2014, Claimants purchased 71,000 swaps; on 29 May 2014, they purchased an additional 20,900 swaps; and on 9 June 2014, Claimants purchased 121,000 more swaps, for a cumulative total of 212,900 swaps.⁸⁸

152. In early August 2014, Claimants began closing out their swaps, and instead acquiring shares of SEC directly.⁸⁹ By 16 September 2014, they had acquired a cumulative 141,650 shares in SEC.⁹⁰ Throughout September 2014 and October 2014, Claimants then began to close out these positions, and by 14 October 2014, they had reduced their shareholding in SEC to zero.⁹¹

⁸³ Hi Investment & Securities, “Cheil Industries (Former Samsung Everland),” 3 November 2014 [R-86], p. 1; “[Market Insight] SC&T’s Status Comes to Light Through SDS and Cheil’s listing,” Market Insight, 20 November 2014 [R-93]; “Cheil Industries to go public next month – Samsung’s corporate governance structure reorganization fully in operation,” MK News, 25 November 2014 [R-94]. ↩

⁸⁴ “Samsung Group Shares Jump Up As Soon as Restructuring Part 2 Opens,” Korea Economic Daily, 31 October 2014 [R-84]; “Samsung heirs pocket 6 tln won ($5.4 bln) in Cheil Industries IPO,” The Korea Times, 19 December 2014 [R-102]. ↩

⁸⁵ First WS Garschina [CWS-1], ¶ 15. ↩

⁸⁶ First WS Garschina [CWS-1], ¶ 15; Fourth WS Garschina [CWS-7], ¶ 8. ↩

⁸⁷ First WS Garschina [CWS-1], ¶ 16; Mason trading records Samsung Electronics, 8 August 2015 [C-31]. A total return swap is a swap agreement between two parties based on underlying asset, where the party holding the underlying asset makes payments to the other party based on the return on the underlying asset, and the other party makes payments based on a set rate. See Investopedia, “Total Return Swap”, accessed 26 October 2020 [R-312]. ↩

⁸⁸ Mason trading records Samsung Electronics, 8 August 2015 [C-31]. ↩

⁸⁹ First WS Garschina [CWS-1], ¶ 16. ↩

⁹⁰ Mason trading records Samsung Electronics, 8 August 2015 [C-31]. ↩

⁹¹ Mason trading records Samsung Electronics, 8 August 2015 [C-31]. ↩

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153. On 30 October 2014, Claimants again began purchasing shares in SEC.⁹² Claimants’ shareholding in SEC peaked at 247,553 shares on 3 April 2015.⁹³ They then began selling these shares, and by July 2015 had sold 128,579 shares of SEC.⁹⁴ According to Claimants, the ebbing and flowing of their holdings in SEC reflects the efforts of their trading teams “to optimize the price of Mason's investment in SEC, and to counteract the influence of high-frequency traders”.⁹⁵ Conversely, Respondent relies on Professor Dow's opinion to argue that Claimants' standard optimization approach was “not ... standard" and that such trading styles instead reflected Claimants' “belie[f] (rightly or wrongly) that they [could] predict short term movements of the share price".⁹⁶

154. Claimants assert that their initial focus was investment in SEC, but by April 2015, they had determined "SC&T was also substantially undervalued and represented a significant investment opportunity".⁹⁷ Given that their investment in SEC and SC&T were “fungible to a large extent”, Claimants considered that SC&T presented “the greatest upside potential”.⁹⁸ Consequently, Claimants made its initial investment into SC&T on 17 April 2015, purchasing 334,000 shares.⁹⁹ They closed out this position on 22 April 2015, but purchased more shares of SC&T beginning in June 2015.¹⁰⁰

155. After the Merger announcement, on 4 June 2015, Claimants purchased 1,589,596 shares of SC&T.¹⁰¹ According to Claimant, additional purchases of SC&T shares were made at this time because they "expected the NPS ... to act rationally and in their best interests, and to block the [Merger]”.¹⁰² The purchase of SC&T shares “reflected [their] attempt to optimize [their]

⁹² Mason trading records Samsung Electronics, 8 August 2015 [C-31]. ↩

⁹³ Mason trading records Samsung Electronics, 8 August 2015 [C-31]. ↩

⁹⁴ Mason trading records Samsung Electronics, 8 August 2015 [C-31]. ↩

⁹⁵ Transcript of Hearing on Preliminary Objections, Day 1, 2 October 2019, pp. 143:2-20; 147:16-25; 150:24- 151:2; 166:5-24 [Cross-Examination of Kenneth Garschina]. ↩

⁹⁶ Statement of Defense, ¶ 77, citing Expert Report of Professor James Dow, 30 October 2020 ("First ER Dow") [RER-4], ¶ 82(b). ↩

⁹⁷ Amended Statement of Claim, ¶ 35; Second WS Garschina [CWS-3], ¶ 16. ↩

⁹⁸ Fourth WS Garschina [CWS-7], ¶ 19; Transcript of Hearing on the Merits, Day 1, 21 March 2022, pp. 22:18-23:3 [Claimants' Opening Submission]. ↩

⁹⁹ Mason trading records SC&T, 10 August 2015 [C-32]. ↩

¹⁰⁰ Mason trading records SC&T, 10 August 2015 [C-32]. ↩

¹⁰¹ Mason trading records SC&T, 10 August 2015 [C-32]. ↩

¹⁰² Reply, ¶¶17-18; Third WS Garschina [CWS-5], ¶ 2; Transcript of Hearing on the Merits, Day 1, 21 March 2022, pp. 26:23-27:31. ↩

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positions between the two securities [i.e., SEC and SC&T] based on the prices, liquidity and information available” at the time.¹⁰³ Accordingly, Claimants dispute Respondent's assertion that, by investing in SC&T after the Merger announcement, they were speculating on the outcome of the Merger.¹⁰⁴

156. Respondent disagrees, arguing that contemporaneous documents, including reports from third party analysts, show Claimants' knowledge of the uncertainty in the NPS's vote on the Merger and, if anything, that the NPS was more likely to vote in favor of it based on its own economic interest.¹⁰⁵ According to Respondent, Claimants' internal documents also show their efforts to increase their voting stake and thereby improve their chances of blocking the Merger.¹⁰⁶ In particular, Respondent contends that Claimants also knew the uncertainty of the vote of the foreign shareholders in SC&T, as well as that these foreign shareholders would be the "wildcard" in determining the outcome of the Merger.¹⁰⁷ This is why, in Respondent's view, Claimants "closely followed—and supported—Elliott's efforts to oppose the Merger".¹⁰⁸

157. By 17 July 2015, when the shareholders of SC&T and Cheil voted to approve the Merger, Claimants had built up their positions to 3,046,915 shares in SC&T and 81,901 shares in SEC.¹⁰⁹ The legal ownership of these investments was divided as follows: the General Partner held 1,951,925 shares in SC&T and 52,466 shares in SEC, and the Domestic Fund held 1,094,990 shares in SC&T and 29,433 shares in SEC.¹¹⁰

¹⁰³ Fourth WS Garschina [CWS-7], ¶ 19. ↩

¹⁰⁴ Reply, ¶ 17. ↩

¹⁰⁵ Rejoinder, ¶¶ 21, 24-27, referring to Email from [Redacted] to K. Garschina et al., 9 June 2015, in [Redacted], 9 June 2015 [C-126]; Email from [Redacted] to K. Garschina et al., 10 June 2015, in Email from [Redacted] to [Redacted] et al., 15 June 2015 [R-419]; Email from [Redacted] to [Redacted], 1 June 2015 [R-397]; Email from [Redacted] to K. Garschina et al., 24 June 2015 [R-429]; Email from [Redacted] to [Redacted] and [Redacted], 7 July 2015 [R-447]; Email from [Redacted] (KIS America) to [Redacted], 27 May 2015 [R-394]; Email from [Redacted] (Citigroup) to [Redacted] et al., 10 June 2015, in Email from [Redacted] to [Redacted] (Citi) et al., 11 June 2015 [R-417]; Email from [Redacted] to undisclosed recipients, 15 June 2015, in Email from [Redacted] to [Redacted] et al., 15 June 2015 [R- 422], p. 1; Email from [Redacted] to undisclosed recipients, 4 June 2015, in Email from [Redacted] to undisclosed recipients, 4 June 2015 [R-402]; Email from K. Garschina to [Redacted], 8 June 2015, in Email from [Redacted] to [Redacted], 9 June 2015 [R-410]. ↩

¹⁰⁶ Rejoinder, ¶ 22, referring to Email from [Redacted] to [Redacted] et al., 10 June 2015 [R-414]. ↩

¹⁰⁷ Rejoinder, ¶¶ 29-30. ↩

¹⁰⁸ Rejoinder, ¶ 31. ↩

¹⁰⁹ Goldman Sachs Brokerage Letter, 10 September 2018 [C-29]. ↩

¹¹⁰ Amended Statement of Claim, ¶ 42; Goldman Sachs Brokerage Letter, 10 September 2018 [C-29], p. 5. ↩

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158. By 6 and 12 August 2015, Claimants had respectively sold all of their shares in SEC and SC&T.¹¹¹

C. The Merger of SC&T and Cheil

1. The Merger announcement

159. On 26 May 2015, the boards of SC&T and Cheil formally announced that they had each passed resolutions deciding that Cheil would acquire and merge with SC&T to form a new entity ("New SC&T") and that the shareholders of SC&T and Cheil would vote on this merger proposal at an extraordinary general meeting (“EGM”) on 17 July 2015.¹¹²

160. The proposed share exchange rate for shares in New SC&T was 1 Cheil share to approximately 0.35 SC&T shares (the “Merger Ratio").¹¹³ The Merger Ratio was determined pursuant to Korea's Capital Market Acts, which requires a merger ratio be calculated by reference to average closing prices (weighted by volumes) for the most recent month, the most recent week, and the most recent trading day.¹¹⁴

161. According to SC&T and Cheil, the proposed Merger was a strategic decision.¹¹⁵ SC&T stated that "[its] capabilities to manage business globally, when combined with Cheil's expertise, [would] help [it] become more competitive", diversify the business portfolio, and “grow into a global leader in fashion, F&B, construction, leisure and biotech industries.¹¹⁶ Cheil echoed this view, noting that the merger would help secure core competencies in the construction business, as well as grow into "a leading global company that [could] provide integrated premium lifestyle services".¹¹⁷

¹¹¹ Mason trading records Samsung Electronics, 8 August 2015 [C-31]; Mason trading records SC&T, 10 August 2015 [C-32]. ↩

¹¹² SC&T DART Filing, Samsung C&T Corporation/Company Merger Decision, 26 May 2015 [R-121], p. 1; Cheil DART Filing, Company Merger Decision, 26 May 2015 [R-122], at 4, 7. ↩

¹¹³ ISS Report [C-9], at 12; SC&T DART Filing, Samsung C&T Corporation/Company Merger Decision, 26 May 2015 [R-121], at 1. ↩

¹¹⁴ Capital Markets Acts, 1 July 2015 [R-181], Arts. 165-4. ↩

¹¹⁵ Cheil Industries Announces Merger with Samsung C&T, Korea Herald, 26 May 2015 [C-5], p. 2. ↩

¹¹⁶ Cheil Industries Announces Merger with Samsung C&T, Korea Herald, 26 May 2015 [C-5], p. 2; SC&T DART filing, "Report on Main Issues," 26 May 2015 [R-120], pp. 2-3. ↩

¹¹⁷ Cheil Industries Announces Merger with Samsung C&T, Korea Herald, 26 May 2015 [C-5], p. 2; Cheil DART filing, "Amended Report on Main Issues", 19 June 2015 [R-157], p. 1. ↩

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162. Immediately following the Merger announcement, the share prices of both SC&T and Cheil increased: SC&T rose 14.83% whereas Cheil rose 14.98% from the previous trading day, reaching the legal limit of a 15% change for single-day trading.¹¹⁸

163. Market analysts expressed conflicting views about the proposed terms of the Merger, including the Merger Ratio.¹¹⁹ In the weeks following the announcement of the Merger, several prominent Korean asset managers also revealed their intentions to vote in favor of the Merger.¹²⁰ In addition, at least 21 Korean securities analysts agreed with the stated synergy effects resulting from the Merger and recommended shareholders to approve the Merger.¹²¹

164. Others urged SC&T shareholders to vote against the Merger, considering that the Merger Ratio grossly overvalued Cheil and, correspondingly, severely undervalued SC&T.¹²² In particular, Institutional Shareholder Services (“ISS”) analyzed that because Cheil was trading at a premium of around 40% of its estimated net asset value, the Merger Ratio should have been 1:095, not 1:035.¹²³ Consequently, some analysts observed that the main objective of the Merger was merely to strengthen JY Lee's control over the Samsung Group under the Lee family's succession plan while avoiding tax liabilities.¹²⁴ For Claimants, this was indeed the real purpose of the Merger.¹²⁵

¹¹⁸ "Samsung C&T share prices increase by 10%, prices likely to fluctuate," Maeil Business News, 4 June 2015 [R-140], p. 1; “In Expectations about Synergies... Both Cheil Industries and Samsung C&T hit the ceiling," Hankook Ilbo, 26 May 2015 [R-345], p. 1; “Korea Exchange (KRX) to lower its bid price unit," The Korea Economic Daily, 22 January 2020 [R-263], p. 1. ↩

¹¹⁹ Amended Statement of Claim, ¶ 44; Statement of Defense, ¶ 81. See also Transcript of Hearing on the Merits, Day 1, 21 March 2022, pp. 149:17-150:1 [Respondent's Opening Submission]. ↩

¹²⁰ Statement of Defense, ¶ 95. See "8 Out of 10 Korean Asset Managers Are In Favor of the SC&T-Cheil Merger," MK News, 16 June 2015 [R-152]; "SC&T Merger: Focus on Vote of Korea Investment Management With 3% Shareholding," Money Today, 6 July 2015 [R-190]. ↩

¹²¹ [Redacted] "How do the Domestic Securities Analysts View the 'Samsung C&T Merger'?" Digital Daily, 8 July 2015 [R-194]. See, e.g., Hyundai Research, "From a long term perspective, the Merger is beneficial to shareholders of both companies," 22 June 2015 [R-158]; BNK Securities, “Samsung C&T / Cheil Industries Merger," 18 June 2015 [R-155], p. 1; Daeshin Securities, “SC&T share price now dependent on the value of merged entity," 27 May 2015 [R-126], p. 1; Kyobo Securities, "Cheil Industries – Samsung C&T Merger... Warrants a prudent judgment," 16 June 2015 [R-151], p. 1; KTB Securities, “Issue & Pitch: SC&T (000830)” 27 May 2015 [R-127], pp. 1, 3. ↩

¹²² ISS Proxy Advisory Services Report, 3 July 2015 [R-188], pp. 2, 15. See also Transcript of Hearing on the Merits, Day 1, 21 March 2022, pp. 32:25-33:12 [Claimants' Opening Submission]. ↩

¹²³ ISS Proxy Advisory Services Report, 3 July 2015 [R-188], p. 17. See also Transcript of Hearing on the Merits, Day 1, 21 March 2022, p. 43:13-19 [Claimants' Opening Submission]. ↩

¹²⁴ [Redacted] and [Redacted] "Samsung Heir Apparent Jay Y Consolidates Power With Merger", The Wall Street Journal, 26 May 2015 [R-123]; [SUPER RICH] Lee Jay-yong consolidates hold on Samsung", The Korea Herald, 2 June 2015 [R-135]. ↩

¹²⁵ Amended Statement of Claim, ¶ 46. ↩

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165. From 4 June 2015, Elliott—another U.S. hedge fund with 7.12% stake in SC&T-publicly objected to the Merger, stressing that the terms of the Merger were unfair to the SC&T shareholders.¹²⁶ On the day of Elliott's announcement that it would wage a proxy battle against the Samsung Group, SC&T's share price rose around 10%.¹²⁷

166. Elliott took a number of actions in its public campaign, including writing letters to the SC&T board,¹²⁸ asking the Korean Financial Services Commission to investigate SC&T and other companies in the Samsung Group for potential violations of the Financial Holding Companies Act and anti-competitive behavior,¹²⁹ and pursuing injunction proceedings to prevent the Merger from occurring.¹³⁰ The Korean courts rejected Elliott's application to enjoin SC&T from holding the EGM, concluding that “the merger ratio was assessed in accordance with the statutory formula and [that] there [were] no circumstances suggesting the stock prices that based merger prices were influenced by market manipulation and dishonest transactions”.¹³¹

2. The NPS's decision to vote in favor of the Merger

167. Prior to the decision on the Merger, NPS had considered whether to vote to approve another chaebol merger, between SK Holdings Co. and SK C&C Company (the “SK Merger”).¹³² At the time of its vote on the SK Merger, the NPS was a shareholder in both companies and the proposed merger ratio was set by statute.¹³³ Two shareholder proxy services—ISS and Korea

¹²⁶ Statement of Defense, ¶ 85; Elliott Press Release, “Elliott Confirms 7% Stake in Samsung C&T," 4 June 2015 [R-138]. See also Transcript of Hearing on the Merits, Day 1 p. 33:16-25 [Claimants' Opening Submission]. ↩

¹²⁷ Newsis, SC&T surges as "Elliott purchases additional share," 6 June 2015 [R-142]. ↩

¹²⁸ "Elliott claims that 'SC&T directors did not perform their legal duties," NewsPim, 26 June 2015 [R-167]. ↩

¹²⁹ Letter from Elliott Advisors (HK) Limited to FSC, 29 May 2015 [R-130]; Letter from Elliott Advisors (HK) Limited to KFTC, 8 June 2015 [R-143]; "What are the issues in investigations on new circular shareholdings of SC&T?" The Bell, 16 September 2015 [R-226]. ↩

¹³⁰ Seoul Central District Court Case No. 2015KaHab80582, 1 July 2015 [R-177], pp. 11-14. ↩

¹³¹ Seoul Central District Court Case No. 2015KaHab80582, 1 July 2015 [R-177], pp. 8-12; Seoul High Court Case No. 2015Ra20485, 16 July 2015 [R-214], pp. 1-7 (upholding Seoul District Court's decision). ↩

¹³² NPSIM Management Strategy Office (Responsible Investment Team), Agenda for Discussion: Proposed Exercise of Voting Rights on Domestic Equity Investments, 17 June 2015 [R-154], at 1-2. ↩

¹³³ NPSIM Management Strategy Office (Responsible Investment Team), Agenda for Discussion: Proposed Exercise of Voting Rights on Domestic Equity Investments, 17 June 2015 [R-154], at 1; “SK Group, SK C&C and SK Holdings to merge (part 2),” Yonhap News, 20 April 2015 [R-110], at 2. ↩

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Corporate Governance Service (“KCGS”)—recommended that the NPS approve the SK Merger.¹³⁴

168. The Investment Committee convened on 17 June 2015 to decide upon the agenda items for the SK Merger drafted by the Responsible Investment Team.¹³⁵ On that agenda, the Responsible Investment Team recommended that the Investment Committee refer the decision to the Special Committee.¹³⁶ The Investment Committee had determined that the question of the viability of the merger was “difficult”, and that it therefore should be made by the Special Committee.¹³⁷ On 24 June 2015, the Special Committee convened and decided that the NPS should vote against the SK Merger.¹³⁸

169. Chaebol merger approval decisions made prior to the SK Merger were typically made by the NPS Investment Committee, and not the Experts Voting Committee.¹³⁹ In its review of the procedure taken regarding the SK Merger, the NPS found that “with the need to set clear standards in mind for exercising voting rights on mergers in cases concerning chaebol corporate governance restructuring in the future, the issue needs to be referred to the Special Committee”.¹⁴⁰ It also found "in essence, the SK merger is the same as the Samsung merger despite their differing degrees".¹⁴¹

¹³⁴ NPSIM Management Strategy Office (Responsible Investment Team), Agenda for Decision: Proposed Exercise of Voting Rights on Domestic Equity Investments,” 17 June 2015 [R-154], at 10. ↩

¹³⁵ NPSIM Management Strategy Office (Responsible Investment Team), Agenda for Discussion: Proposed Exercise of Voting Rights on Domestic Equity Investments, 17 June 2015 [R-154], at 1. ↩

¹³⁶ NPSIM Management Strategy Office (Responsible Investment Team), Agenda for Decision: Proposed Exercise of Voting Rights on Domestic Equity Investments, 17 June 2015 [R-154], at 1-2. ↩

¹³⁷ Ministry of Health and Welfare, Guidelines on the Operation of the National Pension Fund, 9 June 2015 [C-6], art. 17(5); NPS, Guidelines on the Exercise of the National Pension Fund Voting Rights, undated [R-55], art. 8; NPSIM Management Strategy Office (Responsible Investment Team), Agenda for Discussion: Proposed Exercise of Voting Rights on Domestic Equity Investments, 17 June 2015 [R-154], at 1-2. ↩

¹³⁸ NPS Press Release, NPS opposes merger of SK affiliates, 24 June 2015 [C-78; R-162]. Ministry of Health and Welfare, Report on the 2015 2nd Special Committee on the Exercise of Voting Rights Meeting Result, 24 June 2015 [R-164]. ↩

¹³⁹ NPS, Status of Investment Committee's Deliberations in Major Merger and/or Spin Offs in 2010-2016, undated [R-333]. ↩

¹⁴⁰ NPS, Assessment of Referral of SK-SK C&C Merger to the Expert Voting Committee, 10 June 2015 [C- 127], at 2. ↩

¹⁴¹ NPS, Assessment of Referral of SK-SK C&C Merger to the Expert Voting Committee, 10 June 2015 [C- 127], at 2. ↩

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170. On 29 May 2015, Korean media reported that NPS sources had disclosed that “there was no reason for the NPS to oppose the merger” as long as SC&T share prices remained higher than the appraisal price at the time of the vote.¹⁴²

171. KCGS, an independent proxy advisor hired by the NPS, recommended that the NPS vote against the Merger on the grounds that the Merger was disadvantageous to SC&T shareholders, the ratio was insufficiently reflective of SC&T's net asset value, and the Merger had been proposed for succession planning purposes rather than to achieve any genuine business synergies.¹⁴³

172. Between 30 June and 10 July 2015, the Research Team prepared three reports on the calculation of an appropriate valuation for SC&T and Cheil, which included the Research Team's own calculation of an “appropriate merger ratio”.¹⁴⁴ The calculations of the appropriate merger ratio evolved over the three reports:

1. on 30 June 2015, an appropriate ratio was considered between 1:0.89 and 1:0.46, with a median of 1:0.64, calculating the value of a share of Cheil (KRW 125,422 against a share of SC&T (KRW 80,037);¹⁴⁵
2. on 6 July 2015, it was concluded that the appropriate ratio was 1:0.39, calculating the value of a share of Cheil (KRW 185,951) against a share of SC&T (KRW 73,416);¹⁴⁶ and
3. on 10 July 2015, it was concluded that the appropriate ratio was 1:0.46, calculating the value of a share of Cheil (KRW 159,248) against a share of SC&T (KRW 69,677).¹⁴⁷

173. On 10 July 2015, the NPS Investment Committee convened a meeting to decide, inter alia, how the NPS should exercise its voting rights with respect to the Merger proposal as shareholders of

¹⁴² MK New, NPS's Vote in Cheil-SC&T Merger, 29 May 2015 [R-131], at 1. ↩

¹⁴³ Seoul High Court, Case No. 2017No1886, Prosecutor v. Moon/Hong, 14 November 2017 [CLA-14], p. 15; KCGS, Report on Analysis of Agenda Items of Domestic Listed Companies (2015) - Samsung C&T, July 3, 2015 (with translation excerpt) [C-192]. See Transcript of Hearing on the Merits, Day 1, 21 March 2022, pp. 43:23-44:7 [Claimants' Opening Submission]. ↩

¹⁴⁴ Seoul High Court Case No. 2017No1886, 14 November 2017 (revised and further translation of CLA-14) [R-243], p. 55. ↩

¹⁴⁵ Seoul High Court, Case No. 2017No1886, Prosecutor v. Moon/Hong, 14 November 2017 [CLA-14], p. 21- 22; revised and further translation [R-243], p. 21. ↩

¹⁴⁶ Seoul High Court, Case No. 2017No1886, Prosecutor v. Moon/Hong, 14 November 2017 [CLA-14], p. 21- 22; revised and further translation [R-243], at 21. ↩

¹⁴⁷ Seoul High Court, Case No. 2017No1886, Prosecutor v. Moon/Hong, 14 November 2017 [CLA-14], p. 21- 22; revised and further translation [R-243], at 21. ↩

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both SC&T and Cheil.¹⁴⁸ Each member of the Investment Committee was presented with a selection of five options with respect to the Merger: (a) for the NPS to vote in favor of the Merger; (b) for the NPS to vote against the Merger; (c) for the NPS to vote that it is neutral on the Merger; (d) for the NPS to abstain from voting on the Merger; and (e) for the individual Committee member to abstain from voting with respect to the Merger.¹⁴⁹

174. The members of the Investment Committee were also provided with the Merger analysis report of 10 July 2015 created by the Responsible Investment Team, which, in addition to the appropriate merger ratio, addressed the effects on the corporate governance and shareholding structures within the Samsung Group; the effects of the Merger on the Fund's portfolio, including its shareholdings in SC&T and Cheil; the impact of the Merger on the Korean stock market and economy in general; the potential "synergy effects" of the Merger; and the share price movements of SC&T and Cheil leading up to and after the Merger announcement.¹⁵⁰

175. The Investment Committee deliberated upon how the NPS should vote on the Merger for three hours.¹⁵¹ According to the minutes of this meeting, the members of the Investment Committee actively discussed the controversies surrounding the Merger (including Elliott's vocal opposition), the anticipated economic benefits of the Merger, and the various reactions from the media, analysts and experts following the announcement of the Merger.¹⁵² They also examined the reasonableness of the Merger Ratio (including an explicit recognition that it was set by statute), as well as the “synergy” calculations provided by the Research Team.¹⁵³

¹⁴⁸ NPSIM Management Strategy Office (Responsible Investment Team), "Agenda for Decision: Proposed Exercise of Voting Rights on Domestic Equity Investments," 10 July 2015 [R-200]; NPSIM Management Strategy Office, 2015-26th Investment Committee Meeting Minutes, 17 June 2015 [R-153]. ↩

¹⁴⁹ NPSIM Management Strategy Office, 2015-30th Investment Committee Meeting Minutes, 10 July 2015 [R-201], 3-16. ↩

¹⁵⁰ NPSIM, Analysis Regarding the Merger of Cheil Industries and Samsung C&T, 10 July 2015 [R-202], pp. 1-48. ↩

¹⁵¹ NPSIM Management Strategy Office, 2015-30th Investment Committee Meeting Minutes, 10 July 2015 [R-201]. ↩

¹⁵² NPSIM Management Strategy Office, 2015-30th Investment Committee Meeting Minutes, 10 July 2015 [R-201], pp. 7-13. ↩

¹⁵³ NPSIM Management Strategy Office, 2015-30th Investment Committee Meeting Minutes, 10 July 2015 [R-201], p. 5. ↩

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176. Seven votes were required for an approval of the NPS's decision on the Merger vote.¹⁵⁴ At the end of the meeting, eight of the twelve members voted in favor of the merger, three abstained from voting, and one voted for the NPS to remain neutral on the Merger.¹⁵⁵

177. The decision taken by the Investment Committee on the 10 July 2015 was leaked to the press.¹⁵⁶

3. The alleged interference by the Korean government with the NPS's Merger vote

178. The Parties take different views with respect to the reasons behind the Investment Committee's decision to approve the Merger. According to Claimants, Korean criminal investigations and trials of senior officials of the Korean government establish that Respondent unlawfully engaged in a concerted effort to force the NPS to approve the Merger by:

1. subverting the NPS's internal decision-making process by ensuring that the Investment Committee, instead of the Special Committee, vote on the Merger;
2. ordering the NPS Research Team to fabricate certain calculations, including the synergy effect to make up for the losses the NPS was expected to suffer as a result of the Merger; and
3. pressuring the members of the Investment Committee to approve the Merger.¹⁵⁷

179. In particular, Claimants point out that Respondent takes no view on the veracity of the evidence nor does it present evidence to the contrary to deny its wrongdoing.¹⁵⁸

180. Respondent denies Claimants' allegations in their entirety, arguing that the NPS had good economic reasons to vote in favor of the Merger and that the decision of the Investment Committee was taken in accordance with the Fund Operational Guidelines and the Voting Guidelines (together, the “NPS Guidelines"). Respondent further takes issue with Claimants' characterizations of the Korean court decisions and the allegations of the Korean prosecutors in

¹⁵⁴ Statement of Defense, ¶ 103. ↩

¹⁵⁵ NPSIM Management Strategy Office, 2015-30th Investment Committee Meeting Minutes, 10 July 2015 [R-201], pp. 2, 15. ↩

¹⁵⁶ Rejoinder, ¶ 160. ↩

¹⁵⁷ Amended Statement of Claim, ¶ 83; Reply, ¶ 36; Transcript of Hearing on the Merits, Day 6, 11 May 2022, pp. 989:17-990:8 [Claimants' Closing Submission]. ↩

¹⁵⁸ Transcript of Hearing on the Merits, Day 1, 21 March 2022, p. 13:13-16 [Claimants' Opening Submission]. ↩

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their indictments, highlighting the non-final nature of the decisions and one-sided litigation positions.¹⁵⁹

a) Claimants' position

181. At the outset, Claimants submit that Respondent's efforts to discredit the findings of its own judicial system or the veracity of the evidence presented by its own prosecutors should be rejected.¹⁶⁰ Claimants contend that the evidentiary record of Korea's corrupt scheme relating to the Merger "far surpasses the evidence typically available in investment arbitrations involving allegations of corruption”.¹⁶¹ In particular, Claimants assert that the recent indictment against JY Lee alleges that he engaged in stock price manipulation by conspiring to lower the value of SC&T and inflate that of Cheil.¹⁶² As these indictment reflect the position of the Korean prosecutors, which are part of the Korean Ministry of Justice and, in turn, part of the Korean State, Claimants argue that such prosecutorial indictments are in fact "Korea's submissions on the facts alleged in the indictments".¹⁶³

182. Claimants reject Respondent's argument that the factual findings of the Korean courts remain contested due to certain criminal proceedings that remain pending.¹⁶⁴ According to Claimants, appellate review by the Korean Supreme Court is primarily limited to findings of law; factual determinations are reviewable only under extremely limited circumstances, none of which apply to the cases at hand.¹⁶⁵ By way of example, Claimants note that Minister Moon's and CIO Hong's appeals are confined to questions of law and neither has challenged the factual determinations made by the lower courts.¹⁶⁶ Consequently, Claimants assert that the factual findings by the Korean courts which they rely are “final and intact”.¹⁶⁷

¹⁵⁹ Rejoinder, ¶ 34. ↩

¹⁶⁰ Reply, ¶¶ 26-27. ↩

¹⁶¹ Reply, ¶ 30. ↩

¹⁶² Reply, ¶ 29. ↩

¹⁶³ Transcript of Hearing on the Merits, Day 1, 21 March 2022, pp. 14:15-15:5 [Claimants' Opening Submission]. ↩

¹⁶⁴ Reply, ¶ 28. ↩

¹⁶⁵ Reply, ¶ 28, relying on Korean Criminal Procedure Act [CLA-191], Art. 383. ↩

¹⁶⁶ Reply, ¶ 28. See also [Redacted] "Special Prosecutor Appeals Against Moon Hyeong-pyo and Hong Wanseon's 'Alleged Pressure on Samsung Merger'... 'Misunderstanding of Legal Principles”', NEWS1, 20 November 2017 [C-181]. ↩

¹⁶⁷ Reply, ¶ 28. ↩

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183. Emphasizing that Korean prosecutors are State organs, as confirmed by the Tribunal, Claimants further contest Respondent's attempt to distance itself from its own prosecutors and to cast doubt on the allegations contained in their indictments.¹⁶⁸ In sum, Claimants contend that Respondent's efforts to discredit the findings of its own judicial system or the veracity of the evidence presented by its own prosecutors should be rejected.¹⁶⁹

(1) The Blue House and the MHW ordered the NPS to approve the Merger

184. According to Claimants, the scheme behind the forced approval of the Merger was put in motion by President Park around late June 2015 when she ordered Mr. Choi Won-young, Senior Secretary for Employment and Welfare (“Senior Secretary Choi”), to “keep a close eye on the exercise of the voting right".¹⁷⁰ Then, on 26 June 2015, Mr. Kim Ki-nam, the Blue House Administrator of the Office for Employment and Welfare, asked Ms. Baek Jin-ju, the Deputy Director of the National Pension Fund Policy at the MHW, “to confirm whether the [M]erger would be decided by the Investment Committee”.¹⁷¹ As observed by the Korean courts, on around 29 June 2015, during a Senior Presidential Secretary meeting, Claimants allege that President Park ordered her officials to "take good care of the NPS voting rights issue regarding the [SC&T/Cheil] merger", which her subordinates, including Senior Secretary Choi, understood it to mean that “[they] should ensure the accomplishment of the merger”.¹⁷²

185. In response to Respondent's argument that any quid pro quo relationship between JY Lee and President Park existed only after the Merger vote, Claimants point out that the most recent indictment of JY Lee alleges that JY Lee informed President Park of his “intent” to sponsor the equestrian organization which President Park was fond of and to offer “financial support” to one of her associates “in order to induce cooperation from the President” in support of the Merger.¹⁷³ Therefore, Claimants argue that the quid pro quo relationship between the Lee family and

¹⁶⁸ Reply, ¶ 29, referring to Procedural Order No. 5, 15 January 2021, ¶ 34; Procedural Order No. 6, 2 March 2021, ¶ 3. ↩

¹⁶⁹ Reply, ¶¶ 26-27; Transcript of Hearing on the Merits, Day 1, 21 March 2022, p. 66:7-16 [Claimants' Opening Submission]. ↩

¹⁷⁰ Amended Statement of Claim, ¶ 79, citing Seoul High Court Case No. 2018No1087, Prosecutor/Park Geun-hye, 24 August 2018 [CLA-15], at 87; Reply, ¶ 32. ↩

¹⁷¹ Amended Statement of Claim, ¶ 81, citing Seoul High Court, Case No. 2017No1886, Prosecutor v. Moon/Hong, 14 November 2017 [CLA-14], p. 38-39. ↩

¹⁷² Reply, ¶ 33, citing Second Suspect Examination Report of Kim Jin-su to the Special Prosecutor, 9 January 2017 [C-166], p. 5. ↩

¹⁷³ Reply, ¶ 39, citing JY Lee Indictment, 1 September 2020 [C-188], p. 36. ↩

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President Park “had been set into motion months earlier, with the specific aim of enlisting President Park's assistance in approving the Merger".¹⁷⁴ In support of their contention, Claimants highlight that the Seoul High Court found that President Park, recognizing that the Merger was "the most essential piece" of the Lee family's succession plan, provided “decisive assistance" to the Merger "immediately prior” to the vote.¹⁷⁵

186. Senior Secretary Choi then instructed Mr. Kim Jin-soo, Secretary of the Office for Employment Welfare, to "figure out the situation”.¹⁷⁶ The Special Prosecutor's examination of Mr. Kim Jin- soo revealed that Senior Secretary Choi instructed him that “per the President's orders ... the NPS should handle the voting rights issue with care ... and should cleverly exercise its voting power and enable the merger to proceed”.¹⁷⁷ Consistent with the President's directive that the NPS's vote in favor of the Merger, Minister Moon specifically instructed Mr. Cho-Nam-kwon, the Chief Bureau of Pension Policy of the MHW (“MHW Pension Bureau Chief Cho") that he "want[ed] the Samsung merger to be accomplished".¹⁷⁸

(2) The Korean government prevented the Special Committee from voting on the Merger

187. Claimants argue that the Korean government subverted the proper internal decision-making processes at the NPS to ensure that the Merger vote would be diverted to the Investment Committee instead of the Special Committee.¹⁷⁹

188. On 26 June 2015, according to Claimants, the Blue House Administrator of the Office for Employment and Welfare, Mr. Kim Ki-nam, asked Deputy Director Baek Jin-ju “to confirm whether the merger would be decided by the Investment Committee”.¹⁸⁰ Then, on 30 June 2015,

¹⁷⁴ Reply, ¶ 39. ↩

¹⁷⁵ Reply, ¶ 40, citing Seoul High Court Case No. 2018No1087, Prosecutor/Park Geun-hye, 24 August 2018 [CLA-15], pp. 86, 103. See Transcript of Hearing on the Merits, Day 1, 21 March 2022, p. 40:8-16 [Claimants' Opening Submission]. ↩

¹⁷⁶ Amended Statement of Claim, ¶ 80, citing Seoul High Court, Case No. 2017No1886, Prosecutor v. Moon/Hong, 14 November 2017 [CLA-14], p. 37. ↩

¹⁷⁷ Reply, ¶ 34, citing Second Suspect Examination Report of Kim Jin-soo to the Korean Special Prosecutor, 9 January 2017 [C-166], p. 6. See Transcript of Hearing on the Merits, Day 1, 21 March 2022, pp. 40:17- 41:7 [Claimants' Opening Submission]. ↩

¹⁷⁸ Reply, ¶ 35, citing Seoul High Court Case No. 2017No1886, 14 November 2017 (revised and further translation of CLA-14) [R-243], p. 14. ↩

¹⁷⁹ Reply, ¶ 41. ↩

¹⁸⁰ Amended Statement of Claim, ¶ 81, citing Seoul High Court, Case No. 2017No1886, Prosecutor v. Moon/Hong, 14 November 2017 [CLA-14], p. 38-39. ↩

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MHW Pension Bureau Chief Cho instructed CIO Hong that the "Investment Committee should decide on the Merger”.¹⁸¹ While the NPS officials tried to convince the MHW officials to have the Merger reviewed by the Special Committee in light of the “controversy over the merger ratio than the SK Merger”,¹⁸² the MHW insisted on 8 July 2015, a week before the Merger vote, that "[i]t is [Minister Moon]'s order, so the Investment Committee should vote in favor of the Merger",¹⁸³ despite “kn[owing] well” that such action “undermined the independence of the Fund by intervening in its individual investment decision-making”.¹⁸⁴

189. Similarly, when CIO Hong suggested that he could persuade the Special Committee to approve the Merger, rather than subverting the NPS's voting procedure, Claimants highlight that the MHW Pension Bureau Chief Cho insisted that it was Minister Moon's "order" that the voting decision be turned over to the Investment Committee so that it could vote in favor of the Merger.¹⁸⁵

190. Claimants argue that the Investment Committee should have referred the vote on the Merger to the Special Committee because as found by the Seoul High Court, “there existed objective and reasonable circumstances to determine that the Merger was difficult for the Investment Committee to decide to vote for or against".¹⁸⁶ In this regard, Claimants contend that both the head of the Responsible Investment Team and the Chairman of the Special Committee agreed that the vote on the Merger was a "difficult decision” which “should be discussed in the [Experts Voting Committee”.¹⁸⁷ In particular, Claimants argue that the Chairman's express request that

¹⁸¹ Amended Statement of Claim, ¶ 84, citing Seoul High Court, Case No. 2017No1886, Prosecutor v. Moon/Hong, 14 November 2017 [CLA-14], p. 14. ↩

¹⁸² Amended Statement of Claim, ¶ 85, citing Seoul High Court, Case No. 2017No1886, Prosecutor v. Moon/Hong, 14 November 2017 [CLA-14], p. 15; Reply, ¶ 53. ↩

¹⁸³ Reply, ¶ 42, citing Transcript of Court Testimony of Jo Nam-iwon, Seoul Central Disdtrict Court, Case No. 2017Gohap34, 22 March 2017 [C-169], pp. 31-32. See also Reply, ¶ 53, referring to Suspect Examination Report of Hong Wan-seon to the Special Prosecutor, 26 December 2016 [C-156], p. 35. ↩

¹⁸⁴ Amended Statement of Claim, ¶ 89, citing Seoul High Court, Case No. 2017No1886, Prosecutor v. Moon/Hong, 14 November 2017 [CLA-14], p. 31. See also Claimants' PHB, ¶¶ 56-57. ↩

¹⁸⁵ Amended Statement of Claim, ¶ 88, referring to Seoul High Court, Case No. 2017No1886, Prosecutor v. Moon/Hong, 14 November 2017 [CLA-14], p. 32; Reply, ¶ 53, referring to C-169, Transcript of Court Testimony of Jo Nam-kwon, Seoul Central District Court Case 2017Gohap34, 22 March 2017 [C-169], p. 31; Seoul High Court Case No. 2018No1087, 24 August 2018 [CLA-15], pp. 83-84; Seoul High Court, Case No. 2017No1886, Prosecutor v. Moon/Hong, 14 November 2017 [CLA-14], pp. 17-18. ↩

¹⁸⁶ Reply, ¶ 44, citing Seoul High Court, Case No. 2017No1886, Prosecutor v. Moon/Hong, 14 November 2017 [CLA-14], p. 32. ↩

¹⁸⁷ Reply, ¶ 44, citing Transcript of phone calls between NPS's Responsible Investment Division Head and MHW Deputy Director, 18 April 2017 [C-172], p. 12; Statement of [Redacted] in the Public Prosecutor's Office, 23 November 2016, [C-152], p. 15. ↩

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the Merger vote be referred to the Special Committee supplied an additional reason to refer the Merger to the Special Committee pursuant to the Fund Operational Guidelines.¹⁸⁸

191. Claimants further highlight Mr. Cho's testimony that the Merger “mandatorily” should have been decided by the Special Committee.¹⁸⁹

192. Claimants posit that the precedent set by the SK Merger should have been followed in the NPS's internal decision-making process with respect to the Merger, given that the two mergers were "essentially identical", as recognized by the NPS's employees and the members of the Special Committee.¹⁹⁰ Specifically, Claimants note that in both mergers, (i) the NPS's stake in the target companies was larger than its stake in the acquiring company; (ii) the target companies were trading at a significant discount to their net asset value, while the acquirer companies were trading at a significant premium; and (iii) it was “widely understood" that the mergers were “intended to benefit the common controlling shareholders by unfairly transferring value from the shareholders of the targets".¹⁹¹

193. In response to Respondent's suggestion that the Investment Committee had unfettered discretion to keep itself a vote that it should have referred to the Special Committee, Claimants refer to the statements of the Chairman of the Special Committee explaining that the Special Committee is the "superior entity”.¹⁹² Therefore, even if the submission of the Merger to the Special Committee was considered a matter of discretion, Claimants agree with the Chairman that "it [was] an abuse of such discretion" not to do so.¹⁹³

194. In any event, Claimants maintain that the decision to refer the matter to the Special Committee was not a matter of discretion, but was in fact mandated pursuant to Article 5(5) of the Fund

¹⁸⁸ Claimants' PHB, ¶ 55. ↩

¹⁸⁹ Claimants' PHB, ¶¶ 51-52, citing Transcript of Hearing on the Merits, Day 3, 23 March 2022, pp. 515:10- 516:6 [Cross-examination of Mr. Cho]. ↩

¹⁹⁰ Reply, ¶¶ 45-46, citing Seoul High Court, Case No. 2017No1886, Prosecutor v. Moon/Hong, 14 November 2017 [CLA-14], p. 13, 56; Statement of [Redacted] in the Public Prosecutor's Office, 23 November 2016, [C-152], p. 15; Assessment of Referral of SK-SK C&C Merger to the Expert Voting Committee, 10 June 2015 [C-127], p. 2. ↩

¹⁹¹ Reply, ¶¶ 45, 47. ↩

¹⁹² Reply, ¶ 50, citing Statement of [Redacted] in the Public Prosecutor's Office, 23 November 2016, [C- 152], p. 14. ↩

¹⁹³ Reply, ¶ 50, citing Statement of [Redacted] in the Public Prosecutor's Office, 23 November 2016, [C- 152], p. 16. ↩

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Operational Guidelines, which are “internally binding" under Korean law.¹⁹⁴ In this respect, Claimants distinguish between the two NPS Guidelines that regulate the NPS's organization and activities, notably that the Voting Guidelines were issued under the umbrella of the Fund Operational Guidelines without independent statutory basis.¹⁹⁵ Accordingly, for Claimants, the Voting Guidelines, which permit, but do not require, a vote by the Special Committee, are subordinate to the Fund Operational Guidelines, which call for a mandatory referral to the Special Committee for any “difficult” vote.¹⁹⁶

(3) The NPS manipulated the benchmark merger ratio and the synergy effects of the Merger

195. In addition to subverting the decision-making procedure of the NPS, Claimants argue that MHW Pension Bureau Chief Cho, CIO Hong, MHW Senior Official Mr. Choi Hong-suk, and other NPS officials ordered the NPS Research Team to contrive a favorable benchmark merger ratio against which to assess the Merger proposal, sabotaging the decision-making process within the Investment Committee.¹⁹⁷ As shown in an NPS internal audit report, Claimants assert that the Research Team, pursuant to CIO Hong's instructions, deliberately fabricated the benchmark ratios three times within a month to make the proposed Merger Ratio of 1:0.35 appear more reasonable.¹⁹⁸

196. Specifically, Claimants take issue with the NPS's second benchmark ratio, arguing that the Research Team manipulated the Merger Ratio by (i) arbitrarily applying a discount rate to the valuation of SC&T that was 17% greater than the standard discount normally applied to similar companies; and (ii) overvaluing Samsung Biologics, Cheil's most important subsidiary, in order to inflate Cheil's value.¹⁹⁹

197. With respect to the third benchmark ratio, in Claimants' view, the consistency of the NPS's analysis with other contemporaneous valuations is irrelevant because the NPS's calculations were

¹⁹⁴ Reply, ¶ 43, citing Revocation of Reprimand Measure, Supreme Court Decision No. 2001DU3532, 26 July 2002 [CLA-136], p. 4; Claimants' PHB, ¶ 60. ↩

¹⁹⁵ Reply, ¶ 49, relying on National Pension Act [CLA-25], Art. 105; National Pension Fund Operational Guidelines, 9 June 2015 [R-144], Art. 17(4); NPS Voting Guidelines, 28 February 2014 [R-55], Arts. 2. ↩

¹⁹⁶ Reply, ¶ 49, referring to NPS Voting Guidelines, 28 February 2014 [R-55], Arts. 8(1), (2); National Pension Fund Operational Guidelines, 9 June 2015 [R-144], Art. 17(5). ↩

¹⁹⁷ Amended Statement of Claim, ¶¶ 91-93; Reply, ¶ 55; Claimants' PHB, ¶ 61. ↩

¹⁹⁸ Amended Statement of Claim, ¶ 91; Reply, ¶ 57, referring to Findings of Targeted Audit by NPS In Connection With SC&T-Cheil Merger, 3 July 2018 [C-26], pp. 1-2. ↩

¹⁹⁹ Amended Statement of Claim, ¶¶ 91-92. ↩

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"the outcome of a corrupt, fraudulent, outcome-oriented process within the NPS”.²⁰⁰ In any event, Claimants argue that the contemporaneous analyses were “based on data manipulated by Samsung and therefore are inherently flawed".²⁰¹

198. However, according to Claimants, even measured against the NPS's final version of the benchmark ratio, the Merger was expected to cause a direct financial loss to the NPS of nearly KRWS 138.8 billion.²⁰² CIO Hong attempted to address this issue by suggesting to JY Lee in a 7 July 2015 meeting that the Merger Ratio be adjusted to make it less unfavorable to SC&T shareholders, but JY Lee refused to accede to this request.²⁰³ Consequently, Claimants submit that CIO Hong directly ordered Mr. [Redacted] (the Research Team) to fabricate the Merger synergy value in order to offset the NPS's expected loss from the Merger at the existing ratio, which the Seoul High Court found to be an "active ... breach of his duty”.²⁰⁴ Minister Moon also intervened and, in a “criminal abuse of authority", made Mr. [Redacted] explain the Merger using the manipulated synergy value.²⁰⁵

199. Following these orders, the fabricated synergy effect produced by the Research Team in just one day resulted from attempts to "blow up the share value" of one of Cheil's holdings and “arbitrarily select[ing]" figures in the calculation, as expressly acknowledged in the NPS's internal audit report.²⁰⁶ These “reverse-engineered" financial analyses lacking any economic support, according to Claimants, were then presented to the members of the Investment Committee for their consideration, which the members relied on, and discussed at length, before casting their vote.²⁰⁷ In this respect, Claimants underscore that five of the Investment Committee members

²⁰⁰ Reply, ¶ 56. ↩

²⁰¹ Reply, ¶ 56. ↩

²⁰² Amended Statement of Claim, ¶ 93, referring to Seoul High Court, Case No. 2017No1886, Prosecutor v. Moon/Hong, 14 November 2017 [CLA-14], p. 82; Reply, ¶ 60. ↩

²⁰³ Amended Statement of Claim, ¶ 93, referring to Seoul Central District Court, Case No. 2017GoHap34, Moon/Hong, 8 June 2017 [CLA-13], p. 13. ↩

²⁰⁴ Amended Statement of Claim, ¶¶ 94-95, citing Seoul High Court, Case No. 2017No1886, Prosecutor v. Moon/Hong, 14 November 2017 [CLA-14], p. 68; Reply, ¶ 60, citing Seoul High Court, Case No. 2017No1886, Prosecutor v. Moon/Hong, 14 November 2017 [CLA-14], p. 68. ↩

²⁰⁵ Amended Statement of Claim, ¶ 94, referring to Seoul High Court, Case No. 2017No1886, Prosecutor v. Moon/Hong, 14 November 2017 [CLA-14], p. 36; Reply, ¶ 60. ↩

²⁰⁶ Reply, ¶ 61, citing Findings of Targeted Audit by NPS In Connection With SC&T-Cheil Merger, 3 July 2018 [C-26], p. 2 and referring to Statement of [Redacted] to the Special Prosecutor, 2 January 2017 [C- 163], p. 9; Claimants' PHB, ¶¶ 65-66. See Transcript of Hearing on the Merits, Day 1, 21 March 2022, pp. 49:20-60:2 [Claimants' Opening Submission]. ↩

²⁰⁷ Reply, ¶ 62, referring to Unedited Minutes of the Investment Committee Meeting, 10 July 2015 [C-145], pp. 8-9. ↩

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later confirmed that they would not have voted in favor of the Merger but for the modelled synergy effect.²⁰⁸

(4) CIO Hong pressured the Investment Committee to vote in favor of the Merger

200. Claimants submit that CIO Hong took further steps to ensure that the Merger would be approved by adding three ad hoc members to the Investment Committee on whose vote he knew he could count.²⁰⁹ In support of this contention, Claimants argue that, unlike his prior practice, CIO Hong directly nominated the three ad hoc members, without seeking the designation of such members by the Investment Strategy Division.²¹⁰

201. Furthermore, Claimants contend that CIO Hong met with at least five members of the Investment Committee to lobby them to vote in favor of the Merger.²¹¹ Claimants reject Respondent's characterization of CIO Hong's pressure on the Committee members as a mere expression of his personal view.²¹² This is because, as testified by one of the members, this type of contact was "completely unprecedented” in the context of an Investment Committee's vote.²¹³ In fact, the Korean courts have found that CIO Hong's private meetings with the Committee members were "in breach of duty that interfered with the Committee members' free and independent judgment".²¹⁴

²⁰⁸ Reply, ¶ 63, referring to Second Statement Report of [Redacted] to Special Prosecutor, 27 December 2016 [C-158], p. 14; Transcript of Court Testimony of [Redacted] Seoul Central District Court Case No. 2017Gohap34-2017Gohap183, 10 April 2017 [C-171], pp. 8, 12; Second Statement Report of [Redacted] to the Special Prosecutor, 28 December 2016 [C-161], p. 7; Statement Report of [Redacted] to the Special Prosecutor, 28 December 2016 [C-159], p. 17; Statement Report of [Redacted] to the Special Prosecutor, 28 December 2016 [C-160], pp. 10-11. ↩

²⁰⁹ Amended Statement of Claim, ¶ 96, referring to Seoul High Court, Case No. 2017No1886, Prosecutor v. Moon/Hong, 14 November 2017 [CLA-14], pp. 83-84; Seoul Central District Court, Case No. 2017GoHap34, Moon/Hong, 8 June 2017 [CLA-13], pp. 9 n. 13, 49-50; Reply, ¶¶ 64-65, referring to Transcript of Court Testimony of [Redacted] Seoul Central District Court Case No. 2017Gohap34/2017 Gohap183, 19 April 2017 [C-173], pp. 23-24; Claimants' PHB, ¶ 62. ↩

²¹⁰ Amended Statement of Claim, ¶ 96; Reply, ¶ 65. ↩

²¹¹ Amended Statement of Claim, ¶ 97, referring to Seoul High Court, Case No. 2017No1886, Prosecutor v. Moon/Hong, 14 November 2017 [CLA-14], pp. 84-85; Seoul Central District Court, Case No. 2017GoHap34, Moon/Hong, 8 June 2017 [CLA-13], pp. 16-17, 55-56; Claimants' PHB, ¶ 63. ↩

²¹² Reply, ¶ 67. ↩

²¹³ Reply, ¶ 66, citing Statement Report of [Redacted] to the Special Prosecutor, 26 December 2016 [C-157], p. 7. ↩

²¹⁴ Claimants' PHB, ¶ 64, citing Seoul High Court, Case No. 2017No1886, Prosecutor v. Moon/Hong, 14 November 2017 [CLA-14], pp. 38-39. ↩

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202. As a result, the Investment Committee approved the Merger with eight votes in favor, one neutral vote, and three abstentions.²¹⁵ Two of CIO Hong's appointed ad hoc members voted in favor of the Merger.²¹⁶ Therefore, Claimants conclude that the Committee members' votes in favor of the Merger were induced by "unreasonably computing the fair merger ratio, improvised analysis results on merger synergy and the CIO [Hong]'s pressure on individual members of the Investment Committee”, as found by the Seoul High Court.²¹⁷

203. In light of the foregoing, Claimants reject Respondent's argument that the Investment Committee had legitimate economic reasons to vote in favor of the Merger.²¹⁸ In response to Respondent's assertion that the Merger Ratio was calculated in accordance with Korean law, Claimants point out that, as shown in the case of the Merger, the statutory calculation of a merger ratio can be manipulated when the common controlling shareholder of the two affiliate entities selectively chooses the timing of the merger announcement to ensure favorable merger ratio at the detriment of other shareholders.²¹⁹ In this respect, Claimants cite to the NPS's analyses, which considered that the consequence of the timing of the Merger was that it was uniquely harmful to SC&T shareholders and calculated appropriate merger ratios that were higher than the Merger Ratio.²²⁰

204. To bolster their claim, Claimants refer to KCGS's conclusions that that there was a 22.64% difference between the merger ratio calculated by its own method (i.e., 1:0.42) and the statutory Merger Ratio (i.e., 1:0.35) and that the NPS “would face losses corresponding to the 22.64% difference" if the Merger was approved.²²¹

205. Claimants argue that the positive commentary of securities analysts relied upon by Respondent was in fact "the product of a concerted pressure campaign by members of the Lee family and their allies", as revealed by the testimony before the Korean Congress in 2016 and the recent

²¹⁵ Amended Statement of Claim, ¶ 98. ↩

²¹⁶ Reply, ¶ 68. ↩

²¹⁷ Reply, ¶ 68, citing Seoul High Court, Fourth Criminal Division, Case No. 2018No1087, Prosecutor/Park Geun-hye, 24 August 2018 [CLA-15], p. 86. ↩

²¹⁸ Reply, ¶¶ 82, 85. ↩

²¹⁹ Reply, ¶ 86, relying on Chang-Hyun Song, Byung Tae Kin, Joon-Hyuk Chung and Sang-Beom Hong, "Analysis of Freeze-outs in Korea: Quest for Legal Framework Synchronizing Transactional Efficiency and Protection of Minority Shareholders", 8 Journal of Korean Law 277 (2 June 2009) [CLA-203]. ↩

²²⁰ Reply, ¶ 87, referring to C-144, NPSIM, Key Information Regarding the Merger of Cheil Industries and Samsung C&T, 8 July 2015 [C-144], p. 6. See above at ¶ 172. ↩

²²¹ Reply, ¶ 89, citing Transcript of Court Testimony of [Redacted] Case 2017Gohap194 (Seoul Central District Court, May 24, 2017) [C-175], pp. 26-27. See also Claimants' PHB, ¶ 86. ↩

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indictment of JY Lee.²²² Claimants further take the view that the “the promise of corporate governance improvements [as advanced by the analysts] was illusory” under the proposed terms of the Merger.²²³ Indeed, Claimants point out that the actual market behavior was “fundamentally inconsistent with Korea's Defense of the Merger" as share prices of both SC&T and SEC precipitously dropped and continued to fall thereafter following the approval of the Merger as shareholders "raced to sell their stock".²²⁴

206. In response to Respondent's argument that the Korean courts in the civil proceedings declined to nullify or annul the transaction, Claimants argue that the relevant cases concerned questions of corporate law, addressed only narrow issues, and applied a different a standard of proof.²²⁵ Moreover, Claimants emphasize that none of the claimants in the cases had “the benefit of knowledge of the full scope of Korea's wrongdoing and, therefore, failed to address how or why the NPS voted the way it did as in this arbitration.²²⁶

(5) MHW and CIO Hong suppressed the Special Committee from discussing the Merger

207. In response to Respondent's argument that the Special Committee was free to intervene in the decision-making process regardless, Claimants contend that CIO Hong and MHW took steps to neutralize and suppress the Special Committee before, during, and after the meeting which took place before the EGM.²²⁷ According to Claimants, CIO Hong not only “ignored” the Chairman of the Special Committee who urged him to refer the Merger vote to the Special Committee, but also refused to provide the Special Committee the materials necessary for a discussion.²²⁸

208. When the Chairman of the Special Committee still called a meeting for the Special Committee to consider the Merger, Claimants assert that, due to the interventions and interruptions by an

²²² Reply, ¶ 91, referring to Minutes of the Special Committee on Parliamentary Investigation to Clarify the Truth Regarding the Geun-hye Park Administration's Influence-Peddling, 346th Regular Session, No. 5, 6 December 2016 [C-153]; JY Lee Indictment, 1 September 2020 [C-199], pp. 25-26. ↩

²²³ Reply, ¶ 90; Fourth WS Garschina [CWS-7], ¶ 13. ↩

²²⁴ Reply, ¶ 92. ↩

²²⁵ Reply, ¶ 93, referring to Seoul Central District Court Case No. 2015KaHab80582, July 1, 2015 [R-177], pp. 11-14; Seoul Central District Court Case No. 2016GaHap510827, October 19, 2017 [R-242], pp. 11- 12. ↩

²²⁶ Reply, ¶ 93. ↩

²²⁷ Amended Statement of Claim, ¶ 100; Reply, ¶ 69. ↩

²²⁸ Reply, ¶ 70; Transcript of Hearing on the Merits, Day 1, 21 March 2022, p. 50:12-22 [Claimants' Opening Submission]. ↩

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MHW senior official, Mr. Choi Hong-suk, the Special Committee was unable to discuss the decision on the Merger and were instead forced to limit the discussion to the procedural improprieties surrounding the failure to refer the Merger vote to the Special Committee.²²⁹ According to Claimants, the interruptions were so “egregious" that Mr. Jo Yeong-gil, another member of the Special Committee, had to ask for Mr. Choi Hong-suk's removal from the meeting.²³⁰

209. Claimants add that the discussion on the meeting of the Special Committee was not disclosed to the public until the Merger was approved because the MHW intervened, through Mr. Choi Hong- suk, to "exclude[] certain phrases which pointed out problems associated with the convocation of the Investment Committee in the press release which summarized the result of the Experts Voting Committee meeting".²³¹

(6) The NPS sought to cover up its wrongdoing after the Merger

210. After the Merger, Claimants submit that those who were involved in the fraudulent scheme sought to conceal any evidence of their wrongdoings.²³² By way of example, Claimants note that on 14 July 2015, Mr. [Redacted] asked his team to create a new report supporting the analysis of the fabricated synergy effect “as a means of Defense in anticipation of [audits] ... regarding the approval of the merger despite losses generated by the merger ratio".²³³ Mr. [Redacted] also "instructed the working group to delete the interim reports and other relevant documents on two occasions (the week after the Investment Committee [meeting] and immediately before the prosecutorial raid for search and seizure)”.²³⁴ Claimants further assert that CIO Hong tampered with the Investment Committee's official minutes by removing references to various unfavorable

²²⁹ Reply, ¶ 70, referring to Statement of [Redacted] in the Public Prosecutor's Office, 23 November 2016 [C-152], pp. 14, 15. ↩

²³⁰ Reply, ¶ 70. ↩

²³¹ Reply, ¶ 71, citing Seoul Central District Court, Case No. 2017GoHap34, Moon/Hong, 8 June 2017 [CLA- 13], p. 10. See also Second Statement Report of Choi Hong-Suk to the Special Prosecutor, 7 January 2017, [C-165], p. 23. ↩

²³² Reply, ¶ 79. ↩

²³³ Reply, ¶ 80(a), citing Transcript of Court Testimony of [Redacted] Seoul Central District Court Case No. 2017Gohap34-2017Gohap183, 8 May 2017 [C-174], p. 27. ↩

²³⁴ Reply, ¶ 80(b), citing NPS, Findings of Targeted Audit in Connection with SC&T-Cheil Merger, 3 July 2018 [C-26], p. 3. ↩

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remarks, including those made regarding the insufficiency of the Research Team's materials or the estimated financial loss resulting from the Merger.²³⁵

211. Moreover, Claimants contend that the key participants were “rewarded" by the Korean government for “faithfully execut[ing] the corruption scheme” as Minister Moon was appointed as Chairman of the NPS and Mr. [Redacted] was promoted to the Head of the Domestic Equities Management.²³⁶

b) Respondent's position

212. Recalling that the joint case against Minister Moon and CIO Hong has been pending before the Supreme Court in 2017, Respondent contends that the Supreme Court under Korean law may reverse the High Court's decision, including as to findings of fact.²³⁷ Therefore, in Respondent's view, Claimants' allegations rely on the findings of the Korean courts, many of which remain subject to challenges of fact and law.²³⁸

213. Additionally, Respondent contends that prosecutorial allegations contained in the indictments cannot be considered as conclusive statements of facts as they are rejected by the Korean courts in many instances.²³⁹ In particular, Respondent considers that Claimants mischaracterize JY Lee's most recent indictment to imply the manipulation of share prices by JY Lee to generate a merger ratio that would be favorable to Cheil.²⁴⁰ Instead, Respondent clarifies that the indictment contains allegations that the Samsung Group had established a plan to inflate the share prices of both SC&T and Cheil only after the Merger announcement in order “to minimize the exercise of the appraisal right ...”.²⁴¹

²³⁵ Reply, ¶ 80(c), referring to First Statement Report of [Redacted] to the Special Prosecutor, 3 January 2017 [C-164], pp. 17-18. ↩

²³⁶ Reply, ¶ 81. ↩

²³⁷ Rejoinder, ¶¶ 36-37, referring to Case Search Supreme Court Case No. 2017Do19635 (Moon/Hong), accessed on 2 August 2021 [R-514]. ↩

²³⁸ Rejoinder, ¶ 36. ↩

²³⁹ Rejoinder, ¶ 31; Transcript of Hearing on the Merits, Day 1, 21 March 2022, p. 144:2-5 [Respondent's Opening Submission]. See also Transcript of Hearing on the Merits, Day 1, 21 March 2022, p. 144:6-14 [Respondent's Opening Submission]. ↩

²⁴⁰ Rejoinder, ¶ 41. ↩

²⁴¹ Rejoinder, ¶¶ 44-45, citing JY Lee Indictment 1 September 2020 [C-188], pp. 44-45, 74-79, 96-98, 100, 102-104, 106. ↩

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214. Likewise, Respondent takes the view that the examination reports of defendants prepared by prosecutors should be approached with caution as to their evidentiary value, as witnesses often correct or clarify their earlier statements to the prosecutors during their subsequent court testimony.²⁴² By way of example, Respondent illustrates the discrepancy between Mr. [Redacted] 's court testimony and examination report: contrary to his earlier statements that the MHW had requested the Investment Committee to vote on the Merger given the higher likelihood of the Special Committee voting against the Merger, he testified in court that it was not clear that the MHW wanted the NPS to approve the Merger.²⁴³

(1) There is no evidence if and how the Blue House and the MHW ordered the NPS to approve the Merger

215. According to Respondent, contrary to what Claimants allege, none of the facts support a conclusion that President Park, the Blue House officials, and the MHW instructed the NPS to secure the approval of the Merger.²⁴⁴

216. First, recalling the decision of the Seoul District Court, which was later affirmed by the Seoul High Court and the Supreme Court, Respondent argues that a quid pro quo relationship between President Park and JY Lee was created during the 25 July 2015, i.e., after the Merger was approved.²⁴⁵ These court decisions, according to Respondent, “fundamentally contradict" Claimants' assertion that President Park interfered in the NPS's decision on the Merger to support JY Lee in exchange for bribes.²⁴⁶

217. As for Claimants' reliance on JY Lee's recent indictment that he "inten[ded] to sponsor an equestrian organization and offer financial support to one of her associates “in order to induce cooperation from the President in support the Merger”, Respondent points out that such intent was not in fact relayed to President Park because otherwise President Park would not have

²⁴² Rejoinder, ¶ 41; Transcript of Hearing on the Merits, Day 1, 21 March 2022, p. 145:12-19 [Respondent's Opening Submission]. ↩

²⁴³ Rejoinder, ¶ 41. Compare First Statement Report of [Redacted] to the Special Prosecutor, 22 December 2016 [R-466], p. 1 with Transcript of Court Testimony of [Redacted] (Moon/Hong Seoul Central District Court), 26 April 2017 [R-489], p. 3. ↩

²⁴⁴ Statement of Defense, ¶ 132. ↩

²⁴⁵ Statement of Defense, ¶¶ 125-130, referring to Seoul High Court Case No. 2018No1087, 24 August 2018 (further translation of CLA-15) [R-258], p. 112; Rejoinder, ¶ 48, referring to Supreme Court of Korea Case No. 2018Do14303, 29 August 2019 [R-276], pp. 1-2. ↩

²⁴⁶ Rejoinder, ¶ 50. ↩

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reprimanded JY Lee at the 25 July 2015 meeting for not supporting the equestrian organization, as found by the Korean courts.²⁴⁷

218. Further, Respondent argues that Claimants have not established how President Park's instructions to Mr. Choi Won-young "to keep a close eye on the exercise of the [NPS's] voting right” and to the meeting attendees in June 2015 to “take good care of the NPS voting rights issue regarding the Merger” were equivalent to giving “orders” to procure the approval of the Merger.²⁴⁸ In this respect, Respondent clarifies that the purported understanding of President Park's instructions by her subordinates, which Claimants rely upon, as an instruction to “ensure the accomplishment of the Merger" was based on the statements of Presidential Secretary Kim Jin-su, who did not in fact attend the June 2015 meeting.²⁴⁹ Respondent adds that Mr. Kim Jin-su's understanding that Senior Secretary Choi Won-young's words to him to “handle the NPS voting rights issue with care" meant that the NPS should “enable the [M]erger to proceed" does not reflect what Senior Secretary Choi really intended.²⁵⁰

219. According to Respondent, the communications within the Blue House and the MHW, including Senior Secretary Choi Won-young instructing Mr. Noh Hong-in (Senior Executive Official to the Secretary of Employment and Welfare) and Mr. Kim Jin-su to "[c]heck up on the Merger ... which has been heavily covered by the media in recent days", Mr. Noh, in turn, delivering this instruction to Mr. Kim Ki-nam (Executive Offical to the Secretary of Employment and Welfare), and upon Mr. Kim Ki-nam's instructions, MHW Deputy Director Baek Jin-ju providing a report on the Investment Committee's voting standards and the expected timeline for the Committee's decision, were consistent with President Park's instruction to her staff to "keep abreast of the [Merger] issue" in light of the importance of the matter to the Korean economy, as well as Elliott's public opposition to the Merger.²⁵¹

²⁴⁷ Rejoinder, ¶ 47, citing JY Lee Indictment, 1 September 2020 [C-188], p. 87. ↩

²⁴⁸ Statement of Defnce, ¶¶ 131-132, citing Seoul High Court Case No. 2017No1886, 14 November 2017 (revised and further translation of CLA-14) [R-243] at 38; Rejoinder, ¶¶ 51-52, citing Second Suspect Examination Report of Kim Jin-su to the Special Prosecutor, 9 January 2017 [C-166], pp. 5-7. ↩

²⁴⁹ Rejoinder, ¶ 51, referring to Second Suspect Examination Report of Kim Jin-su to the Special Prosecutor, 9 January 2017 [C-166], pp. 6-7. ↩

²⁵⁰ Rejoinder, ¶ 52, citing Second Suspect Examination Report of Kim Jin-su to the Special Prosecutor, 9 January 2017 [C-166], pp. 6-7. ↩

²⁵¹ Statement of Defense, ¶ 134; Rejoinder, ¶ 53, referring to Transcript of Court Testimony of Noh Hong-in (Moon/Hong Seoul Central District Court), 20 March 2017 [R-476], p. 2; Transcript of Court Testimony of Kim Ki-nam (JY Lee Seoul Central District Court), 14 June 2017 [R-496], at 2; Ministry of Health and ↩

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220. Respondent also takes issue with Claimants' lack of explanation as to how President Park's instruction regarding the Merger at the end of June 2015 would have been delivered to Minister Moon and the MHW.²⁵² In this regard, Respondent contends that there is no corroborating evidence to support Mr. Kim Jin-su's speculation that President Park “would have either asked Minister [Moon] directly” or have Senior Secretary An Jong-beom or Choi Won-young relay her message to Minister Moon.²⁵³

221. Second, in Respondent's view, Minister Moon's statement to MHW Pension Bureau Chief Cho that "[i]t would be good if the Samsung Merger is approved” is not an instruction to interfere in the NPS's decision-making process, i.e., to procure the Investment Committee's vote in favor of the Merger.²⁵⁴ Even assuming arguendo that Minister Moon's remarks had been an instruction to procure the Investment Committee's vote, Respondent argues that such an instruction would have been "different" from the request that MHW Pension Bureau Chief Cho then made to CIO Hong because, on its face, the request to "[h]ave the Investment Committee decide on the Merger" does not mean that the Investment Committee should vote in favor of the Merger nor that the Special Committee should be bypassed.²⁵⁵

(2) The Investment Committee considered the Merger in accordance with the NPS Guidelines

222. Rejecting Claimants' argument that the MHW pressured the NPS to bypass the Special Committee, Respondent submits that the deliberation of the Merger vote by the Investment Committee was in accordance with the NPS Guidelines.²⁵⁶ Conversely, nothing in the NPS Guidelines, Respondent contends, required a “difficult" decision be referred to the Special Committee without prior consideration by the Investment Committee.²⁵⁷

Welfare Pension Finance Department, "Report on Developments in the Cheil-SC&T Merger", 8 June 2015 [R-409], p. 3. See also Rejoinder, fn. 107.

²⁵² Rejoinder, ¶ 54. ↩

²⁵³ Rejoinder, ¶¶ 56-57, citing Second Suspect Examination Report of Kim Jin-su to the Special Prosecutor, 9 January 2017 [C-166], p. 24. ↩

²⁵⁴ Rejoinder, ¶ 60, citing Seoul High Court Case No. 2017No1886, 14 November 2017 (revised and further translation of CLA-14) [R-243], p. 14. ↩

²⁵⁵ Rejoinder, ¶ 61, citing Seoul High Court Case No. 2017No1886, 14 November 2017 (revised and further translation of CLA-14) [R-243], p. 14. ↩

²⁵⁶ Statement of Defense, ¶¶ 135-136. ↩

²⁵⁷ Rejoinder, ¶ 65. ↩

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223. First, Respondent emphasizes that both the Fund Operational Guidelines and the Voting Guidelines require that the NPS, through the Investment Committee, exercise the Fund's shareholder voting rights for companies in which the Fund holds a stake of three percent or more in the first instance; it is only in exceptional cases when the Investment Committee finds it "difficult ... to determine whether to approve or disapprove” that the matter is referred to the Special Committee.²⁵⁸ Respondent asserts that they do not state that “some matters can be referred to the Special Committee without prior deliberation by the Investment Committee".²⁵⁹ In this respect, Respondent underscores that the Special Committee is not part of the NPS and is an external body operating under the supervision of the MHW.²⁶⁰

224. Contrary to what Claimants suggest, Respondent asserts that the decision whether a matter is "difficult" for the purpose of the NPS Guidelines must be made by the Investment Committee itself, including (i) matters that involve controversies about the appropriateness of the merger ratio in connection with mergers between chaebol companies; and (ii) socially controversial matters.²⁶¹ Therefore, if the NPS Guidelines intended to reserve certain categories of matters for the Special Committee, Respondent is of the view that the NPS Guidelines would have expressly done so.²⁶²

225. Respondent highlights that its reading of the NPS Guidelines is consistent with NPS's "longstanding practice",²⁶³ corroborated by statements by various individuals in both Committees and an MHW official,²⁶⁴ and has been confirmed by the Seoul Central District.²⁶⁵

²⁵⁸ Statement of Defense, ¶ 137; Rejoinder, ¶ 73, citing National Pension Fund Operational Guidelines, 9 June 2015 (revised translation of C-6) [R-144], Art. 17(5). See also Transcript of Hearing on the Merits, Day 1, 21 March 2022, pp. 159:24-160:9 [Respondent's Opening Submission]. ↩

²⁵⁹ Transcript of Hearing on the Merits, Day 1, 21 March 2022, pp. 159:21-23, 162:24-163:6 [Respondent's Opening Submission]. ↩

²⁶⁰ Rejoinder, ¶ 74. ↩

²⁶¹ Rejoinder, ¶¶ 77-80. ↩

²⁶² Rejoinder, ¶ 81. See also Rejoinder, ¶¶ 85, 87. ↩

²⁶³ Rejoinder, ¶¶ 82-83. ↩

²⁶⁴ Rejoinder, ¶ 75, referring to Statement Report of [Redacted] to the Public Prosecutor, 23 November 2016 [R-463], at 2-3; Transcript of Court Testimony of [Redacted] (Moon/Hong Seoul Central District Court), 19 April 2017 [R-488], at; Statement Report of Cho Young-gil to the Public Prosecutor, 28 November 2016 [R-465], at 2-3; Transcript of Court Testimony of [Redacted] (Park Seoul Central District Court), 29 May 2017 [R-495], at 3. ↩

²⁶⁵ Rejoinder, ¶ 76, referring to Seoul Central District Court Case No. 2016GaHap510827, 19 October 2017 [R-242 Resubmitted], at 38 [p. 44]. See also Transcript of Hearing on the Merits, Day 1, 21 March 2022, pp. 161:8-162:6 [Respondent's Opening Submission]. ↩

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226. Respondent contests Claimants' argument that the Fund Operational Guidelines, unlike the Voting Guidelines, “called for a mandatory referral to the [Special] Committee for any ‘difficult' vote".²⁶⁶ Even if the two Guidelines were considered administrative rules under Korean law, as Claimants suggest, the purported supremacy of the Fund Operational Guidelines would still not exist because the “basis upon which an administrative rule is established is irrelevant to its status in the hierarchy of law”.²⁶⁷ According to Respondent, the absence of hierarchy between the two Guidelines is also consistent with their purposes: the Fund Operational Guidelines provide the overall guidance on the operation of the Fund (with only general article on the NPS's exercise of voting rights), whereas the Voting Guidelines prescribe the ways in which the NPS should exercise its voting rights in companies in which the Fund is the shareholder.²⁶⁸

227. Second, Respondent considers that Claimants miscomprehend the content and nature of the MHW's request that the NPS “not to refer the Samsung Merger case to the Special Committee, but decide at the Investment Committee in the first instance" was in fact an instruction from the MHW to the NPS to vote in favor of the Merger.²⁶⁹ As witness testimony of CIO Hong and the NPS employees show,²⁷⁰ and as observed by the Seoul High Court, Respondent clarifies that all that was asked by MHW Pension Bureau Chief Cho to the NPS was to “[h]ave the Investment Committee decided on the [M]erger at issue” and refer the matter to the Special Committee if the Investment Committee could not reach a conclusion.²⁷¹

228. According to Respondent, the testimonial evidence which Claimants rely upon, when viewed in its context, shows that the actual meaning of the MHW's instruction “not to refer [the Merger] to the Experts Voting Committee" was not that the Merger should never be considered by the Special Committee under any circumstances, but was to have the NPS not to "predetermine" the

²⁶⁶ Rejoinder, ¶ 66, citing Reply, ¶ 49. ↩

²⁶⁷ Rejoinder, ¶¶ 68-70. ↩

²⁶⁸ Rejoinder, ¶ 71, referring to National Pension Fund Operational Guidelines, 9 June 2015 (revised translation of C-6) [R-144], Art. 17(4) (“matters regarding standards, methods, procedures, etc. of voting rights exercise shall comply with [the Voting Guidelines]".). ↩

²⁶⁹ Rejoinder, ¶¶ 92-94, 98, citing Suspect Examination Report of Hong Wan-seon to the Special Prosecutor, 26 December 2016 (further translation of C-156) [R-467], at 2. ↩

²⁷⁰ Rejoinder, ¶ 96, referring to Transcript of Court Testimony of Hong Wan-seon (Moon/Hong Seoul Central District Court), 17 May 2017 [R-494], at 3; Transcript of phone calls between Team Leader [Redacted] and Deputy Director Baek Jin-ju, 18 April 2017 (revised and further translation of C-172) [R-486], at 4; Transcript of Court Testimony of [Redacted] (Moon/Hong Seoul Central District Court), 26 April 2017 [R-48], at 5; Transcript of Court Testimony of [Redacted] (Moon/Hong Seoul Central District Court), 26 April 2017 [R-489], at 5-6. ↩

²⁷¹ Rejoinder, ¶¶ 94, 98, citing Seoul High Court Case No. 2017No1886, 14 November 2017 (revised and further translation of CLA-14) [R-243], at 14. ↩

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issue by referring the Merger vote to the Special Committee prior to the Investment Committee's deliberation.²⁷² The evidence, in Respondent's view, at most shows that the MHW preferred a decision by the Investment Committee over a decision by the Special Committee.²⁷³

229. In this respect, Respondent explains that there were other reasons, besides requesting the NPS to properly adhere to the NPS Guidelines, for the MHW's such preference, namely that the MHW was concerned that the Special Committee might decide the Merger vote based on inappropriate policy considerations, such as pursuing social justice, in violation of the management principles set forth in the Fund Operational Guidelines to consider short and long term benefits of the Fund.²⁷⁴ Moreover, Respondent contends that the MHW and the NPS “paid particular attention to close compliance with the NPS Guidelines during the decision-making process" in light of the Merger being a “hot issue” and Elliott's threat to legal actions".²⁷⁵ In fact, Respondent points out that each of the two Committees “tried to shift the decision-making burden to the other", as the members of the Investment Committee also considered the Merger vote as “bothersome and annoying".²⁷⁶

230. In light of the above, Respondent argues that the NPS adopted the open-voting system, where each member of the Investment Committee was presented with five options, upon a careful review of the NPS Guidelines in advance of its decision on the Merger in order to comply with the Guidelines more faithfully.²⁷⁷ In this respect, Respondent explains that the NPS's practice before the Merger vote was that "the Investment Committee would typically follow the Responsible Investment Team's referral recommendation to [the Special Committee] without

²⁷² Rejoinder, ¶¶ 97, 99-100, referring to Handwritten meeting notes of Ms. [Redacted] referenced in her Statement Report to the Special Prosecutor dated 22 December 2016, 30 June 2015 [R-437], at 2; Transcript of Court Testimony of Hong Wan-seon (Moon/Hong Seoul Central District Court), 17 May 2017 [R-494], at 5; Transcript of Court Testimony of [Redacted] (Moon/Hong Seoul Central District Court), 8 May 2017 [R-491], at 2; Suspect Examination Report of Hong Wan-seon to the Special Prosecutor, 26 December 2016 (further translation of C-156) [R-467], at 2. ↩

²⁷³ Rejoinder, ¶ 103. ↩

²⁷⁴ Rejoinder, ¶¶ 104-106, relying on Forensic [Database] Print of Cho Nam-kwon, 25 June-20 July 2015 [R- 545], at 1. ↩

²⁷⁵ Rejoinder, ¶¶ 107-108, citing Transcript of Court Testimony of [Redacted] (Moon/Hong Seoul Central District Court), 19 April 2017 (further translation of C-173) [R-487], at 4. ↩

²⁷⁶ Rejoinder, ¶ 108, citing Transcript of Court Testimony of [Redacted] (Moon/Hong Seoul Central District Court), 10 April 2017 (revised and further translation of C-171) [R-483], at 3 and referring to Transcript of Court Testimony of [Redacted] (Moon/Hong Seoul Central District Court), 26 April 2017 [R-489], at 3; Transcript of Court Testimony of Baek Jin-ju (Moon/Hong Seoul High Court), 26 September 2017 [R-498], at 3. ↩

²⁷⁷ Statement of Defense, ¶ 152. ↩

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deliberating on the substance on the matter".²⁷⁸ Such was the case that the SK Merger was decided by the NPS by following “customary practice”, rather than “rigorously" applying the NPS Guidelines.²⁷⁹

231. As reflected in the testimony of the NPS employees, Respondent states that the voting system was designed to provide an objective basis to determine whether the Merger was difficult for the Investment Committee to decide as part of the NPS's effort to secure closer compliance with the NPS Guidelines.²⁸⁰ In fact, Respondent emphasizes that the open voting system increased the likelihood of the Merger vote being referred to the Special Committee as one of the voting options needed at least seven votes for the matter to be decided by the Investment Committee.²⁸¹ Respondent adds that the legitimacy of the open voting system concerning an “important issue without precedent” has been affirmed by the Korean courts, finding that “[i]t was unreasonable to conclude that [it] was adopted as a result of the abuse of power of [Minister Moon]".²⁸²

232. Third, in respect of the SK Merger, Respondent notes that it was the first time the NPSIM recommended that the Investment Committee refer a Merger vote to the Special Committee.²⁸³ The reason for such referral, according to Respondent, was not to set a “procedural precedent", but was done in the expectation that the Special Committee would establish “clear criteria" to guide the Investment Committee's determination on how to exercise voting rights in future matters concerning the restructuring of chaebols.²⁸⁴ In support of its contention, Respondent underscores that in all merger cases following the Merger, at least until the end of 2016, the

²⁷⁸ Rejoinder, ¶ 112. ↩

²⁷⁹ Rejoinder, ¶ 115(b), citing Transcript of Court Testimony of [Redacted] (Moon/Hong Seoul Central District Court), 5 April 2017 [R-481], at 5. ↩

²⁸⁰ Statement of Defense, ¶ 154, referring to Seoul High Court Case No. 2017No1886, 14 November 2017 (revised and further translation of CLA-14) [R-243], at 19; Rejoinder, ¶¶ 112-115, referring to Seoul High Court Case No. 2017No1886 (Moon/Hong), 14 November 2017 (revised and further translation of CLA- 14) [R-24], at 44; Transcript of Court Testimony of [Redacted] (Moon/Hong Seoul Central District Court), 3 April 2017 [R-480], at 5-6; Transcript of Court Testimony of [Redacted] (Moon/Hong Seoul Central District Court), 8 May 2017 [R-491], at 2-4; Transcript of Court Testimony of [Redacted] (Moon/Hong Seoul Central District Court), 5 April 2017 [R-481], at 5; Transcript of Court Testimony of [Redacted] (Moon/Hong Seoul Central District Court), 26 April 2017 [R-490], at 2. ↩

²⁸¹ Statement of Defense, ¶ 158, relying on Seoul High Court Case No. 2017No1886, 14 November 2017 (revised and further translation of CLA-14) [R-243], at 20; Rejoinder, ¶¶ 115(d), 117, relying on Testimony of [Redacted] (Moon/Hong Seoul Central District Court), 26 April 2017 [R-489], at 7. ↩

²⁸² Statement of Defense, ¶¶ 156-157, citing Seoul High Court Case No. 2017No1886 (Moon/Hong), 14 November 2017 (revised and further translation of CLA-14) [R-243], at 44 and referring to Seoul Central District Court Case No. 2016GaHap510827, 19 October 2017 [R-242], at 38; Rejoinder, ¶ 116. ↩

²⁸³ Statement of Defense, ¶ 150. ↩

²⁸⁴ Statement of Defense, ¶ 150; Transcript of Hearing on the Merits, Day 1, 21 March 2022, p. 164:5-7. ↩

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Investment Committee did not refer a single matter to the Special Committee as it did in the SK Merger.²⁸⁵

233. Respondent asserts that the Special Committee's decision in the SK Merger faced heavy public criticism for prioritizing minority shareholders' interests at the expense of the Fund's interests to maximize returns on investments.²⁸⁶ In a similar vein, Respondent notes that the MHW criticized the NPS for referring the matter to the Special Committee to evade its own responsibilities, contrary to the Voting Guidelines.²⁸⁷ Consequently, it was against this backdrop, Respondent submits, that the NPS in late June 2015 (i.e., before any alleged interference by the Korean government) reviewed its internal guidance concerning factors to be considered in evaluating a merger, memorialized that review in an internal NPS report dated 30 June 2015, and planned to present that analysis to the Investment Committee in advance of its consideration of the Merger.²⁸⁸ Nothing in the report, Respondent continues, suggested that “the Special Committee would somehow displace the Investment Committee in evaluating future merger".²⁸⁹

234. Consequently, Respondent argues that it was in the aftermath of the SK Merger that the NPS became more committed to "faithfully adher[ing]" to the Voting Guidelines and that MHW Pension Bureau Chief Cho requested the NPS to “take responsibility and deliberate on” the Merger.²⁹⁰

235. In any event, Respondent takes the view that the SK Merger was substantively different from the Merger, as the benefits that the SK Merger would bring to the shareholders in the SK Group companies were much more limited than the potential impact of the Samsung Merger.²⁹¹ Specifically, Respondent notes that (i) unlike the Samsung Group, the SK Group already adopted a holding company structure in 2007; (ii) one of the two companies involved in the SK Merger had already been receiving brand license fees before the merger announcement; and (iii) there

²⁸⁵ Statement of Defense, ¶ 150; Rejoinder, ¶ 123. ↩

²⁸⁶ Statement of Defense, ¶148; Rejoinder, ¶125. See also Statement of Defense, ¶¶ 143-144. ↩

²⁸⁷ Rejoinder, ¶ 126. ↩

²⁸⁸ Statement of Defense, ¶ 149, referring to NPSIM Management Strategy Office (Responsible Investment Team) "Measures to Strengthen Review of Agenda Items on Exercise of Voting Rights," 30 June 2015 [R- 175]. ↩

²⁸⁹ Statement of Defense, ¶ 298. ↩

²⁹⁰ Rejoinder, ¶¶ 96(d), 127, citing Transcript of Court Testimony of Baek Jin-ju (Moon/Hong Seoul High Court), 26 September 2017 [R-498], at 3. ↩

²⁹¹ Rejoinder, ¶¶ 133, 135. ↩

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was an issue of the retirement of treasury stocks, which was not present for the Samsung Merger.²⁹²

236. Fourth, Respondent submits that the outcome of the Investment Committee meeting was not predetermined as Claimants allege, as Mr. [Redacted] drafted press releases for three possible outcomes (i.e., vote in favor of the Merger, vote against the Merger, and the referral of the matter to the Special Committee).²⁹³

237. Finally, referring to the Seoul Central District Court's decision on Elliott's injunction application to prevent the EGM from convening, Respondent asserts that the Court "had already reviewed and cleared most of the controversial issues" regarding the Merger, including the purpose of the Merger and the fairness of the Merger Ratio, that might have otherwise made it difficult to decide by the Investment Committee.²⁹⁴

(3) The NPS's financial analyses reviewed by the Investment Committee were reasonable

238. As a preliminary matter, Respondent submits that Claimants have not established that Minister Moon or any other Government official instructed CIO Hong or the NPS employees regarding the calculations of the benchmark ratio or the synergy valuations.²⁹⁵ Rather, the Korean courts have found that any instruction relating to the quantification of synergy effects would have come from CIO Hong alone.²⁹⁶ Therefore, Respondent submits that Claimants have not established that these financial analyses were carried out under Respondent's instructions.²⁹⁷

239. In response to Claimants' criticisms of multiple calculations by the NPS of the benchmark merger ratio, Respondent posits that the revisions were reasonable and consistent with contemporaneous analysis.²⁹⁸ In fact, Respondent points out that ISS, whose opinion Claimants rely on, also

²⁹² Rejoinder, ¶¶ 134-136. See also Respondent's PHB, ¶ 53. ↩

²⁹³ Rejoinder, ¶ 118. ↩

²⁹⁴ Rejoinder, ¶¶ 129-132, referring to Seoul Central District Court Case No. 2015KaHab80582, 1 July 2015 [R-177], at 10-14. ↩

²⁹⁵ Statement of Defense, ¶ 171; Rejoinder, ¶ 137. ↩

²⁹⁶ Statement of Defense, ¶ 169, referring to Seoul Central District Court Case No. 2017GoHap34, 183 (Consolidated), 8 June 2017 (revised translation of CLA-13) [R-237], at 2; Seoul High Court Case No. 2017No1886, 14 November 2017 (revised and further translation of CLA-14) [R-243], at 36; Rejoinder, ¶ 139. ↩

²⁹⁷ Statement of Defense, ¶ 169; Rejoinder, ¶ 139. ↩

²⁹⁸ Rejoinder, ¶ 140. ↩

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modified its calculation of the appropriate merger ratio just six days after the release of its first report.²⁹⁹

240. Denying that the two specific inputs in the NPS's calculation of the second benchmark ratio were manipulated, Respondent asserts that (i) the NPS applied an affiliate-company discount rate of 41% by reference to other holding companies in Korea, which was “well within the range the market applied for valuation of such shares”; and (ii) the valuation of Samsung Biologics were consistent with contemporaneous analyst valuations.³⁰⁰ Respondent further asserts that the calculations were based on “reasonable inputs" that were also consistent with the data that the NPS had compiled before the alleged pressure from the MHW or the Blue House occurred in late June.³⁰¹

241. Respondent further rejects Claimants' argument that the consistency of the NPS's analysis with other contemporaneous valuations is irrelevant because, in its view, “the fact that different independent analysts arrived at different merger ratios, some of which were below and others above the NPS's ratio” demonstrates that the calculation of an appropriate merger ratio is an "imprecise science", which can lead to varying results depending on the “the subjective judgment of the person performing the valuation”, and that the NPS's ratio was in fact not unreasonable.³⁰²

242. With respect to the synergy effects, Respondent submits that the Research Team performed a "sensitivity analysis” to establish the synergy value that would be generated by various levels of sales increases in New SC&T and that there was nothing improper in that process.³⁰³ According to Respondent, the analysis by Mr. [Redacted] required only one day because it was a "simple mathematical calculation”.³⁰⁴ Respondent takes no view as to the correctness of the findings by the Korean courts that Mr. [Redacted] relied-without adequate support on certain projections and assumption regarding New SC&T in calculating the sales synergy effect.³⁰⁵

²⁹⁹ Statement of Defense, ¶ 164, referring to ISS Special Situations Research, SC&T (KNX:000830): proposed merger with Cheil Industries, 3 July 2015 [C-9]; NPSIM, "Analysis Regarding the Merger of Cheil Industries and Samsung C&T," 10 July 2015 [R-202), pp. 44, 48. ↩

³⁰⁰ Statement of Defense, ¶¶ 166-167. ↩

³⁰¹ Statement of Defense, ¶ 162. ↩

³⁰² Statement of Defense, ¶ 164; Rejoinder, ¶ 141. ↩

³⁰³ Statement of Defense, ¶ 171; Rejoinder, ¶ 146. ↩

³⁰⁴ Rejoinder, ¶ 147(a)-(b). ↩

³⁰⁵ Statement of Defense, ¶ 171, referring to Seoul Central District Court Case No. 2017GoHap34, 183 (Consolidated), 8 June 2017 (revised translation of CLA-13) [R-237], at 2. ↩

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243. In Respondent's view, Claimants' singular focus on the alleged fabricated sales synergy effect “unduly understates” the other synergy valuations of the Merger that were presented and analyzed by the Investment Committee.³⁰⁶ In addition, Respondent explains that, prior to its 10 July 2015 meeting, the Investment Committee was presented with a report containing counter-arguments to address the potential limitations of any synergy effects, as well as opinion from ISS and KCGS, which questioned the synergy effects resulting from the Merger.³⁰⁷

244. In any event, Respondent argues that the members of the Investment Committee viewed the synergy calculation presented by Mr. [Redacted] with skepticism, as reflected in the minutes of the 10 July 2015 meeting.³⁰⁸ As the members of the Investment Committee observed that it was "difficult to specify or verify" an assessment of future value based on future synergy prospects resulting from the Merger, Respondent underscores that the Investment Committee was fully aware of the weakness and the limitations of the synergy calculations and did not necessarily base their decision on them.³⁰⁹ In particular, the purportedly fabricated sales synergy effect could not have played a “critical role" as Claimants allege, given that it was unanimously decided by the Investment Committee to omit that calculation from the appendix to the minutes of the meeting.³¹⁰

³⁰⁶ Statement of Defense, ¶ 172. Additional potential synergy effects presented to the Investment Committee include (i) estimated brand license fee of KRW 10 trillion that New SC&T would receive if it became the holding group of Samsung; (ii) the combined effects of the rise in SC&T's and Cheil's share prices due to the Merger; and (iii) the benefits of the merged entity of surfacing as the largest shareholder in fast-growing Samsung Biologics. See Statement of Defense, ¶ 172; Rejoinder, ¶ 144. See also NPSIM Management Strategy Office, 2015-30th Investment Committee Meeting Minutes, 10 July 2015 [R-201], at 11-12; NPSIM, Analysis Regarding the Merger of Cheil Industries and Samsung C&T, 10 July 2015 [R-202], at 7, 11. ↩

³⁰⁷ Statement of Defense, ¶ 173, referring to NPSIM, Analysis Regarding the Merger of Cheil Industries and Samsung C&T, 10 July 2015 [R-202], at 12, 19. ↩

³⁰⁸ Statement of Defense, ¶ 174, referring to NPSIM Management Strategy Office, 2015-30th Investment Committee Meeting Minutes, 10 July 2015 [R-201], at 11-12. See also Transcript of Hearing on the Merits, Day 1, 21 March 2022, pp. 156:23-157:3 [Respondent's Opening Submission]. ↩

³⁰⁹ Statement of Defene, ¶ 174, citing NPSIM Management Strategy Office, 2015-30th Investment Committee Meeting Minutes, 10 July 2015 [R-201], at 11; Rejoinder, ¶ 151 and referring to Transcript of Court Testimony of [Redacted] (Moon/Hong Seoul Central District Court), 17 April 2017 [R-485], at 3-5; Transcript of Court Testimony of [Redacted] (Moon/Hong Seoul Central District Court), 10 April 2017 (revised and further translation of C-171) [R-483], at 2, 4; Transcript of Court Testimony of [Redacted] (Moon/Hong Seoul Central District Court), 5 April 2017 [R-482], at 3; Transcript of Court Testimony of [Redacted] (Moon/Hong Seoul Central District Court), 3 April 2017 [R-479], at 3-5; Statement Report of [Redacted] to the Special Prosecutor, 28 December 2016 [C-160], at 10-11; Transcript of Court Testimony of [Redacted] (Moon/Hong Seoul Central District Court), 5 April 2017 [R-481], at 3. ↩

³¹⁰ Rejoinder, ¶ 150, relying on [Redacted]'s Minutes of the Investment Committee Meeting, 10 July 2015 [C-145], at 9. ↩

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(4) CIO Hong did not “pack” nor pressured the Investment Committee to vote in favor of the Merger

245. As observed by the Seoul High Court, Respondent submits that CIO Hong's appointment of three ad hoc members of the Investment Committee was in accordance with Article 7(1) of the Regulations on the Operation of the National Pension Fund.³¹¹ According to Respondent, the Court rejected the allegation that CIO Hong "packed" the Investment Committee in breach of his duties, finding that CIO Hong appointed the three ad hoc members at the suggestion of Mr. [Redacted] (the Head of the NPS's Management Strategy Office) "given the gravity of the Merger", so that they could “adhere to the relevant regulations to the greatest extent".³¹² The Court further found that two of the ad hoc members were “equipped with the expertise to deliberate on the Merger" and that “there [was] no evidence that [they] voted in favor of the Merger [because they were] influenced by their close relationship with [CIO Hong]".³¹³

246. In response to Claimants' contention that CIO Hong did not seek the recommendation of the NPS's Investment Strategy Division in accordance with his past practice, Respondent argues that Claimants have not proved that CIO Hong's departure from past practice was indeed improper or was a violation of his duties.³¹⁴

247. Furthermore, Respondent rejects Claimants' argument that CIO Hong pressured the members of the Investment Committee to vote in favor of the Merger.³¹⁵ In Respondent's view, the evidence merely shows that CIO Hong expressed his personal view on the Merger, asking each member to "review [and consider] the Merger in a positive way", because he wanted the Investment Committee “to make the right decision”.³¹⁶ In support of its contention, Respondent emphasizes that only two out of the five Investment Committee members with whom CIO Hong discussed his view on the Merger voted in favor of the Merger (and the remaining three members abstained,

³¹¹ Statement of Defense, ¶ 176, referring to Seoul High Court Case No. 2017No1886, 14 November 2017 (revised and further translation of CLA-14) R-243], at 20. ↩

³¹² Statement of Defense, ¶¶ 176, 178, citing Seoul High Court Case No. 2017No1886, 14 November 2017 (revised and further translation of CLA-14) R-243], at 20, 58-59; Rejoinder, ¶ 154. ↩

³¹³ Statement of Defense, ¶¶ 177, 179, citing Seoul High Court Case No. 2017No1886, 14 November 2017 (revised and further translation of CLA-14) R-243], at 58; Rejoinder, ¶ 154. Respondent notes that the Seoul High Court did not comment on CIO Hong's appointment of the third ad hoc member as the Special Prosecutor made no allegation of wrongdoing. See Statement of Defense, ¶ 178. ↩

³¹⁴ Rejoinder, ¶¶ 152-153. ↩

³¹⁵ Statement of Defense, ¶ 181. ↩

³¹⁶ Statement of Defense, ¶ 180, citing Seoul High Court Case No. 2017No1886, 14 November 2017 (revised and further translation of CLA-14) [R-243], at 25; Rejoinder, ¶ 156. ↩

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which, in effect, was equivalent to a vote against the Merger).³¹⁷ Respondent further refers to the findings of the Seoul Central District Court, which concluded that “it appear[ed] more likely that the Investment Committee members would make their decisions based on earnings or the shareholder value rather than be swayed by an individual's influence”.³¹⁸ In the same decision, the civil court also found that “partial testimonies made by the Investment Committee ... made at the criminal court appear[ed] to correlate to such view".³¹⁹

248. In addition, as observed by the Seoul High Court, Respondent takes the view that CIO Hong's views on the Merger were in any event unlikely to have much impact in light of Elliott's letters to the Investment Committee and the public interest in the Merger.³²⁰

249. In view of the above, Respondent rejects Claimants' argument that CIO Hong or the MHW influenced the outcome of the Investment Committee's decision in respect of the Merger.³²¹ Rather, it posits that the NPS had multiple sound economic justifications to vote in favor of the Merger.³²² Specifically, as a long-term investor with substantial shareholdings in 17 Samsung Group companies, the NPS's economic interest, according to Respondent, was thus “a function of the overall success of the restructuring of the Samsung Group as a whole”.³²³ Considering the complexity of the Merger assessment, Respondent highlights that the Investment Committee deliberated "for several hours".³²⁴

250. Noting that the NPS was also a significant shareholder of Cheil (with a 5.04% stake), Respondent submits that the trajectory of the share prices of SC&T and Cheil after the Merger announcement suggested that the market expected the Merger to be value-generative to the shareholders of both

³¹⁷ Statement of Defense, ¶ 182; Rejoinder, ¶ 155. ↩

³¹⁸ Transcript of Hearing on the Merits, Day 1, 21 March 2022, p. 143:7-13, citing Seoul Central District Court Case No. 2016GaHap510827 [R-242], at 38-39 [Respondent's Opening Submission]. ↩

³¹⁹ Transcript of Hearing on the Merits, Day 1, 21 March 2022, p. 143:14-16, citing Seoul Central District Court Case No. 2016GaHap510827 [R-242], at 38-39 [Respondent's Opening Submission]. ↩

³²⁰ Statement of Defense, ¶ 181, referring to Seoul Central District Court Case No. 2016GaHap510827, 19 October 2017 [R-242] at 43. ↩

³²¹ Rejoinder, ¶¶ 110-111. ↩

³²² Statement of Defense, ¶ 183. ↩

³²³ Statement of Defense, ¶ 185. ↩

³²⁴ Transcript of Hearing on the Merits, Day 1, 21 March 2022, p. 156:11-16 [Respondent's Opening Submission]. ↩

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companies.³²⁵ Accordingly, pursuant to the NPS Guidelines, the NPS evaluated and considered that the Merger would generate positive “shareholder value” for the Fund in the long-term.³²⁶

251. Furthermore, the NPS shared the view of many securities analysts regarding the long-term positive impact of the Merger on the Korean economy and stock market.³²⁷ Based on the conclusion of the NPSIM Domestic Equity Office's research that former corporate restructuring of Korean conglomerates led to a 15% increase in the enterprise value, the NPS projected to increase its profit to KRW 3.5 trillion (about USD 3 billion) from its shareholding in the Samsung Group companies.³²⁸ Accordingly, even assuming arguendo that there was a short-term loss to SC&T shareholders, Respondent contends that such a loss "would pale in comparison to the medium to long-term benefits to the NPS" as a long-term investor with substantial exposure to multiple other Samsung Group companies.³²⁹

(5) MHW and CIO Hong did not suppress the Special Committee from discussing the Merger

252. Respondent denies that the MHW and CIO Hong prevented the Special Committee from raising their concerns with the Merger in public because a member of the Special Committee in fact did voice his opinion to the media on 10 July 2015, noting that the Merger was likely to be approved if the Merger vote decision were to be referred to the Special Committee.³³⁰ Moreover, while Claimants have not established how more vocal opinions from the Special Committee would have changed the outcome of the NPS's vote, Respondent argues that the Special Committee, in any event, had no power to review or “overturn” the Investment Committee's vote on the Merger.³³¹

253. Respondent considers Claimants' contention that Mr. Choi Hong-suk was uncooperative at the Special Committee's meeting “exaggerated”, considering that Mr. Cho Young-gil, who attended

³²⁵ Statement of Defense, ¶ 189. ↩

³²⁶ Statement of Defense, ¶ 189. ↩

³²⁷ Statement of Defense, ¶¶ 186-187, referring to NPS document titled "For reference" containing data relating to the Merger, 8 July 2015 [R-193], pp. 69, 81-82, 86, 88, 90. ↩

³²⁸ Statement of Defense, ¶ 188, referring to NPS, Domestic Equity Division of Investment Management, "Review of the Possibility of Corporate Governance Reform of Major Groups," 15 May 2014 [R-63], at 1. ↩

³²⁹ Statement of Defense, ¶ 190. ↩

³³⁰ Statement of Defense, ¶ 464, referring to "Jung-Keun Oh, member of the Special Committee, argues that the Committee should vote yes to the Samsung C&T merger," Money Today, 10 July 2015 [R-197]. ↩

³³¹ Rejoinder, ¶¶ 157, 159. See Witness Statement of Cho Young-Gil, 13 August 2021 ("WS Cho" [RWS-1], ¶¶ 43, 47. ↩

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the meeting, did not view Mr. Choi's interventions to go beyond the scope of his duties as an administrative secretary.³³² Respondent further clarifies that it was a “regular practice” for MHW and NPS representatives to participate in the Special Committee meetings, in accordance with the Special Committee's regulations.³³³

254. According to Respondent, the NPS was prevented from disclosing the results of the Investment Committee's meeting to the public before the EGM on 17 July 2015 under Article 10(1)2 of the Voting Guidelines.³³⁴ This was the reason why, according to Respondent, that Senior Secretary Choi refused to comply with the Special Committee members' request for materials, as “the production of such materials would have required the MHW and the NPS to effectively and officially disclose the results of the Investment Committee meeting".³³⁵

255. Lastly, Respondent denies that Senior Secretary Choi papered over the record in the Special Committee's press release, asserting that the language of the press release was ultimately agreed by the members of the Special Committee after an initial disagreement.³³⁶

(6) The NPS did not cover up any wrongdoings after the Merger

256. As testified by Mr. [Redacted], Respondent clarifies that Mr. [Redacted]'s request for a more substantiated and detailed report supporting the sales synergy effect analysis in anticipation of national audits was necessary because the national audits “require a lot of data based on end-of- month figures".³³⁷

257. Further, Respondent denies that CIO Hong tampered with the Investment Committee's meeting minutes by removing certain references about the Merger.³³⁸ According to Respondent, the "unedited minutes” which Claimants refer to was in fact one of three separate sets of notes taken by the clerks present at the meeting that were to be combined and edited for the purpose of creating the official minutes.³³⁹ Respondent further explains that the edits made in this process

³³² Rejoinder, ¶ 160(a); WS Cho [RWS-1], ¶¶ 39-42. ↩

³³³ Rejoinder, ¶ 161, referring to Regulations on the Operation of the Special Committee on the Exercise of Voting Rights, 9 June 2015 [R-145], Art. 6. ↩

³³⁴ Rejoinder, ¶160(b), referring to NPS Voting Guidelines [R-55], Art. 10(1)2. ↩

³³⁵ Rejoinder, ¶ 160(b). ↩

³³⁶ Rejoinder, ¶ 162. ↩

³³⁷ Rejoinder, ¶ 164. ↩

³³⁸ Rejoinder, ¶ 165. ↩

³³⁹ Rejoinder, ¶ 165. ↩

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were not CIO Hong's doing and that any edits made received “the unanimous approval of the Investment Committee members to accurately reflect the content of the meeting”.³⁴⁰ In any event, Respondent notes that the information that Claimants allege was removed was still included in the official meeting minutes.³⁴¹

258. Finally, Respondent denies that the Korean government rewarded key participants for their purported roles in the Merger:

1. President did not “cash[] her reward from JY Lee because there was no quid pro quo relationship between them in respect of the Merger;
2. As the position of the NPS Chairman is closer to the rank of Vice Minister, Minister Moon's appointment as NPS Chairman was a demotion rather than a promotion; and
3. There is no evidence that Mr. [Redacted]'s promotion, which occurred two years after the NPS's decision on the Merger, had any connection with the Merger.³⁴²

4. The Merger approval

259. For the Merger to be approved under Korean law, two-thirds of the shareholders present at the Cheil and SC&T EGMs had to vote in favor of it and the total number of votes in favor represent more than one-third of the total issued and outstanding shares.³⁴³

260. On 17 July 2015, owners of around 84% of the total outstanding shares of SC&T (or 132,355,800 shares out of 156,217,764 outstanding shares) were present at the EGM.³⁴⁴ Of those present, 69.53% (92,023,660 shares) voted in favor of the Merger, representing 58.91% of total issued and outstanding shares.³⁴⁵

261. Most domestic institutional investors, including the NPS and Korea Investment Management ("KIM")—the largest Korean asset manager—with a 4.12% stake, voted in favor of the

³⁴⁰ Rejoinder, ¶ 165. ↩

³⁴¹ Rejoinder, ¶ 165. ↩

³⁴² Rejoinder, ¶ 166. ↩

³⁴³ Korean Commercial Act [CLA-60; R-18; R-332], Arts. 434, 522. ↩

³⁴⁴ Seoul High Court, Case No. 2017No1886, Prosecutor v. Moon/Hong, 14 November 2017 [CLA-14], p. 28. ↩

³⁴⁵ Seoul High Court, Case No. 2017No1886, Prosecutor v. Moon/Hong, 14 November 2017 [CLA-14], p. 85, n. 11; Statement of Defense, ¶ 106. ↩

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Merger.³⁴⁶Approximately one-third of foreign shareholders of SC&T, including sovereign wealth funds of Singapore, Saudi Arabia, and Abu Dhabi, also voted in favor of the Merger.³⁴⁷

262. On the same day, Cheil shareholders unanimously voted in favor of the Merger.³⁴⁸

263. The Merger became effective on 1 September 2015.³⁴⁹

264. According to Claimants, the Merger would not have been approved but for the NPS's vote.³⁵⁰ Claimants add that the Blue House, the MHW, and the Korean courts have confirmed that the NPS held the “casting vote” for the Merger.³⁵¹

265. As shown in the table below,³⁵² Claimants argue that, had the NPS abstained or voted against the Merger, the Merger would not have been approved for failing to meet the minimum threshold, i.e., two-thirds of the votes held by the shareholders present at the meeting.³⁵³

³⁴⁶ Statement of Defense, ¶ 453(a); Seoul High Court, Case No. 2017No1886, Prosecutor v. Moon/Hong, 14 November 2017 [CLA-14], p. 28. See also Korea Investment Management Co., Ltd. website, “CEO's Message," accessed on 28 October 2020 [R-315]; Korea Investment Management Co., Ltd. website, "About Us,” accessed on 28 October 2020 [R-314]. ↩

³⁴⁷ Statement of Defense, ¶ 107. See "Samsung Merger: SC&T's success in winning foreign shareholders' votes in Elliott's turf," Chosun Biz, 17 July 2015 [R-216]. ↩

³⁴⁸ Yonhap News Agency, Cheil Industries shareholders OK merger with Samsung C&T, 17 July 2015 [CRA- 27]. ↩

³⁴⁹ Performance Report on the Issuance of Securities (Merger) from Cheil Industries Inc. to the Chairman of the Financial Supervisory Service, 2 September 2015 [R-225]. ↩

³⁵⁰ Amended Statement of Claim, ¶ 62. ↩

³⁵¹ Reply, ¶ 77, referring to Blue House, Directions for Exercising the National Pension Service's Voting Rights With Regards to the Samsung C&T Merger, undated [C-193], p. 41; MHW, Report on NPS Exercise of Voting Rights Regarding Samsung C&T and Cheil Industries Merger, 9 July 2015 [C-198], p. 1; Ilsung Pharmaceuticals Corp v. Samsung C&T Corp, Case 2016Ra20189, 20190 Appraisal Price Decision, Seoul Court, 30 May 2016 (with translated excerpts) [CLA-115], p. 22. ↩

³⁵² Amended Statement of Claim, ¶ 62; First ER Duarte-Silva [CER-4], Figure 1. ↩

³⁵³ Reply, ¶ 75. ↩

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266. Respondent, on the other hand, argues that the NPS's vote was not decisive as shareholders other than the NPS voted, or could have voted, in favor of the Merger.³⁵⁴

D. Criminal and civil proceedings in Korea

267. In early June 2015, Elliott filed an application for injunction in the Seoul Central District Court to prevent SC&T from convening its EGM to vote on the Merger, alleging that (i) the purpose of the Merger was to only strength the control of the controlling shareholder at the expense of minority shareholders; (ii) the Merger Ratio was determined in favor of the controlling shareholders; (iii) the market price of SC&T and/or Cheil had been manipulated, and (iv) the timing of the Merger was chosen for the benefit of the controlling shareholder.³⁵⁵

268. On 1 July 2015, the Seoul Central District Court rejected Elliott's application, finding, inter alia, that (i) the proposed Merger Ratio was “not manifestly unfair”; and (ii) the market reaction after

³⁵⁴ Statement of Defense, ¶¶ 472-473. See also Rejoinder, ¶ 333. ↩

³⁵⁵ Seoul Central District Court Case No. 2015KaHab80582, 1 July 2015 [R-177], at 3-5. ↩

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the Merger announcement indicated that the Merger benefitted not only the controlling shareholders.³⁵⁶ The Seoul High Court upheld this decision on 16 July 2015.³⁵⁷

269. In February 2016, several Korean shareholders of SC&T filed a lawsuit seeking the annulment of the Merger.³⁵⁸ The investors alleged the Merger Ratio was unfair to SC&T shareholders,³⁵⁹ SC&T had manipulated its share price to affect the Merger Ratio,³⁶⁰ and the NPS voting process regarding the Merger was procedurally flawed.³⁶¹ The Seoul Central District Court dismissed the claims on 19 October 2017, holding that the Merger Ratio was in accordance with the Korean Capital Markets Act, and the NPS decision-making procedure was not illegal.³⁶² The case is currently pending on appeal before the Seoul High Court.³⁶³

270. From late 2016, a number of criminal proceedings were initiated in light of the corruption scandal involving President Park and her confidante, Ms. Choi Seo-won (formerly Choi Soon-sil), who was alleged to have taken advantage of her personal connections with President Park to interfere with state affairs and solicit bribes from various businesspeople, including JY Lee.³⁶⁴ The exposure of the collusion triggered an investigation, led by a Special Prosecutor, which resulted in indictments against various public officials.³⁶⁵

271. On 9 December 2016, Korea's President Park Geun-hye was impeached by parliament, and her removal from office was upheld by Korea's Constitutional Court on 10 March 2017.³⁶⁶ President

³⁵⁶ Seoul Central District Court Case No. 2015KaHab80582, 1 July 2015 [R-177], at 10-14. ↩

³⁵⁷ Seoul High Court Case No. 2015Ra20485, 16 July 2015 [R-214] at 1. ↩

³⁵⁸ Seoul Central District Court Case No. 2016GaHap510827, Ilsung Pharmaceuticals/SC&T, 19 October 2017 [R-242], at 4. ↩

³⁵⁹ Seoul Central District Court Case No. 2016GaHap510827, Ilsung Pharmaceuticals/SC&T, 19 October 2017 [R-242], at 5. ↩

³⁶⁰ Seoul Central District Court Case No. 2016GaHap510827, Ilsung Pharmaceuticals/SC&T, 19 October 2017 [R-242], at 5. ↩

³⁶¹ Seoul Central District Court Case No. 2016GaHap510827, Ilsung Pharmaceuticals/SC&T, 19 October 2017 [R-242], at 5. ↩

³⁶² Seoul Central District Court Case No. 2016GaHap510827, Ilsung Pharmaceuticals/SC&T, 19 October 2017 [R-242], at 17-19, 37. ↩

³⁶³ Case Search Seoul High Court Case No. 2017 Na2066757, Ilsung Pharmaceuticals/SC&T (Merger Annulment), 19 October 2020 [R-302]. ↩

³⁶⁴ Statement of Defense, ¶ 116. ↩

³⁶⁵ Statement of Defense, ¶ 116. ↩

³⁶⁶ Constitutional Court Case No. 2016Hun-Nal, Impeachment of the President (Park Geun-hye), 10 March 2017 [CLA-7], at 1, 68-70. ↩

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Park was then criminally prosecuted on the grounds of bribery, abuse of power, and coercion in relation to bribes taken from chaebols, including the Samsung Group.³⁶⁷ Specifically, President Park was alleged to have taken bribes from JY Lee in the form of financial supports for (i) the equestrian association to which the daughter of her confidante, Ms. Choi Soon-sil belonged; and (ii) the Korea Elite Center, a sporting association established By Ms. Choi, in return for President Park's assistance in JY Lee's alleged succession plan to consolidate power in the Samsung Group.³⁶⁸

272. On 6 April 2018, the Seoul Central District Court sentenced President Park to 24 years imprisonment for taking bribes from three chaebols, including the Samsung Group.³⁶⁹ On appeal, the Seoul High Court increased her sentence to 25 years, finding, among other bribes, that President Park had accepted USD 7.8 million in bribes to assist JY Lee in executing his succession plan for the Samsung Group.³⁷⁰ On 29 August 2019, the Korean Supreme Court partially reversed this sentence, and remanded the case to the Seoul High Court for further review.³⁷¹ The Seoul High Court, on remand, announced a reduced sentence of 20 years.³⁷² President Park's sentence was affirmed by the Korean Supreme Court on 21 January 2021.³⁷³

273. On 24 August 2018, Ms. Choi Soon-sil was convicted and sentenced to 20 years imprisonment for soliciting and accepting bribes, coercion, and abuse of authority.³⁷⁴ Specifically, the Seoul High Court found that any bribed received by Ms. Choi was solicited at the meeting of 25 July

³⁶⁷ Seoul High Court, Case Nos. 2019No1962, 2019No2657 (Consolidated Decision), Prosecutor/Park Geun-hye, 10 July 2020 [R-284]. ↩

³⁶⁸ Statement of Defense, ¶¶ 117, 124; Seoul High Court, Fourth Criminal Division, Case No. 2018No1087, Prosecutor/Park Geun-hye, 24 August 2018 [CLA-15], pp. 102-103; Seoul High Court, Fourth Criminal Division, Case No. 2018No1087, Prosecutor/Park Geun-hye, 29 August 2018, further translation [R-258], pp. 54-55. ↩

³⁶⁹ Seoul Central District Court, Case No. 2017Gohap364-1, Prosecutor/Park Geun-hye, 6 April 2018 [CLA-134]. ↩

³⁷⁰ Seoul High Court, Fourth Criminal Division, Case No. 2018No1087, Prosecutor/Park Geun-hye, 24 August 2018 [CLA-15, R-258]. ↩

³⁷¹ Seoul High Court, Fourth Criminal Division, Case No. 2018No1087, Prosecutor/Park Geun-hye, 29 August 2019 [R-276], pp. 1, 12. See also [Redacted] and [Redacted], Appeals Court Sentences Park Geun-hye to 25 years and fine of 20 bil. Won, Hankyoreh, 25 August 2018 [C-106], p. 2. ↩

³⁷² Seoul High Court Case No. 2019No1962-2019No2657, Prosecutor/Park Geun-hye, 10 July 2020 [R-284]. ↩

³⁷³ Korean Supreme Court Case No. 2020Do9836, Prosecutor/Park Geun-hye, 14 January 2021 [CLA-182]. ↩

³⁷⁴ Seoul High Court Case No. 2018Noh723-1, Prosecutor/Choi Soon-sil, 24 August 2018 [CLA-131]. ↩

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2015.³⁷⁵ This finding, as well as her sentence, was affirmed by the Korean Supreme Court on 29 August 2018.³⁷⁶

274. On 8 June 2017, the Seoul Central District Court found Minister Moon and CIO Hong guilty of abuse of authority and occupational breach of trust, respectively.³⁷⁷ On appeal, the Seoul High Court rendered its decision on 14 November 2017.³⁷⁸ On 14 April 2022, the Korean Supreme Court dismissed the appeals of Minister Moon and CIO Hong and affirmed the findings of the Seoul High Court.³⁷⁹

275. On 25 August 2017, JY Lee was convicted for bribing President Park and Ms. Choi Seo-won to help facilitate his succession plan.³⁸⁰ On 5 February 2018, the Seoul High Court upheld the conviction of JY Lee.³⁸¹ On 29 August 2019, the Korean Supreme Court partially reversed the judgment and remanded it to the Seoul High Court.³⁸² On remand, JY Lee’s conviction was upheld, and he was sentenced to 2.5 years of imprisonment.³⁸³

276. In September 2020, an additional indictment was filed against JY Lee and ten other current and former Samsung executives focusing primarily on the Merger.³⁸⁴ The new charge alleges that the Samsung Group formulated a plan to raise the stock prices of both SC&T and Cheil after the Merger announcement in order “to minimize the exercise of the appraisal right ...”.³⁸⁵

³⁷⁵ Seoul High Court Case No. 2019No1938, 14 February 2020 [R-280], p. 1. ↩

³⁷⁶ Supreme Court Case No. 2018Do13792, Prosecutor/Choi Soon-sil, 29 August 2018 [CLA-132], pp. 2-6. ↩

³⁷⁷ Seoul Central District Court, Case No. 2017Gohap34, Prosecutor v. Moon/Hong, 8 June 2017 [CLA-13, R-237]. ↩

³⁷⁸ Seoul High Court, Case No. 2017No1886, Prosecutor v. Moon/Hong, 14 November 2017 [CLA-14, R-243]. ↩

³⁷⁹ Supreme Court Decision Case No. 2017No19635 (Moon/Hong), 14 April 2022 [CLA-233], p.3. ↩

³⁸⁰ Seoul Central District Court Case No. 2017GoHap194, Prosecutor/Lee Jae-yong, 25 August 2017 [R-239]; see also BBC News, Samsung heir Lee Jae-jong jailed for corruption, 25 August 2017, [C-99]. ↩

³⁸¹ Seoul High Court Case No. 2017No2556, Prosecutor/Lee Jae-yong, 5 February 2018 [R-248]. ↩

³⁸² Korean Supreme Court Case No. 2018Do2738, Prosecutor/Lee Jae-yong, 29 August 2019 [CLA-13, R-277]; Seoul High Court Case No. 2019No1937, Prosecutor/Lee Jae-yong [R-305]. ↩

³⁸³ Seoul High Court Case No. 2019No1937, Prosecutor/Lee Jae-yong, 18 January 2021 [CLA-181], at 1. ↩

³⁸⁴ JY Lee Indictment, 1 September 2020 [CLA-188]. ↩

³⁸⁵ JY Lee Indictment, 1 September 2020 [CLA-188]. ↩

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E. Capital contributions and incentive allocation of the General Partner

277. In accordance with Article 4.03 of the Partnership Agreement, the General Partner established individual capital accounts for both the Limited Partner and for itself that were updated on a monthly basis.³⁸⁶

278. Between the beginning of the Cayman Fund’s operations in early 2010 and the end of May 2014, the Limited Partner provided net capital contributions of approximately USD 5.56 billion.³⁸⁷ These capital contributions were credited to the Limited Partner’s capital account.³⁸⁸ The General Partner did not make any cash contributions to its capital account up to May 2014.³⁸⁹

279. At the end of May 2014, the Cayman Fund’s assets had a value of approximately USD 6.52 billion.³⁹⁰ The difference of USD 0.96 billion between the amount of the Limited Partner’s net capital contributions and the value of the Cayman Fund’s assets was, according to Mr. Satzinger, due to the latter’s appreciation in value.³⁹¹ In Claimants’ view, this amount reflects the value of the General Partner’s “historic contribution of its investment decision-making, management and expertise”.³⁹²

280. Between the beginning of 2010 and the end of May 2014, the General Partner accumulated Incentive Allocation of approximately USD 351.86 million in total.³⁹³ The General Partner’s Incentive Allocation was credited to its capital account,³⁹⁴ the majority of which the General

³⁸⁶ Transcript of Hearing on Preliminary Objections, Day 1, 2 October 2019, p. 182:8-25 [Cross-examination of Mr. Satzinger]. ↩

³⁸⁷ Second WS Satzinger [CWS-4], ¶ 13. ↩

³⁸⁸ Transcript of Hearing on Preliminary Objections, Day 1, 2 October 2019, pp. 185:16-187:7 [Cross-examination of Mr. Satzinger]. ↩

³⁸⁹ Transcript of Hearing on Preliminary Objections, Day 1, 2 October 2019, p. 192:17-19 [Cross-examination of Mr. Satzinger]. ↩

³⁹⁰ Second WS Satzinger [CWS-4], ¶ 14. ↩

³⁹¹ Transcript of Hearing on Preliminary Objections, Day 1, 2 October 2019, pp. 188:20-189:9 [Cross-examination of Mr. Satzinger]. ↩

³⁹² Rejoinder on Preliminary Objections, ¶ 58; Second WS Satzinger [CWS-4], ¶¶ 13-14; Transcript of Hearing on Preliminary Objections, Day 1, 2 October 2019, p. 190:4-16 [Cross-examination of Mr. Satzinger]. ↩

³⁹³ Second WS Satzinger [CWS-4], ¶ 15. ↩

³⁹⁴ Transcript of Hearing on Preliminary Objections, Day 1, 2 October 2019, pp. 192:23-193:4 [Cross-examination of Mr. Satzinger]. ↩

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Partner took out of its capital account every year.³⁹⁵ Specifically, the General Partner’s Incentive Allocation for the year 2013 was substantially withdrawn in January 2014.³⁹⁶

281. In 2014, the value of the Cayman Fund’s assets depreciated by approximately 12% or USD 720 million.³⁹⁷ As a result of this, the General Partner did not receive any Incentive Allocation in 2015.³⁹⁸

282. In January 2015, the General Partner’s capital account contained at most “a couple of hundred thousand dollars”.³⁹⁹

IV. REQUESTS FOR RELIEF

A. Claimants’ request for relief

283. In the Amended Statement of Claim, Claimants request that the Tribunal render an award:

1. DECLARING that Korea has breached the FTA in relation to Mason’s investments;
2. ORDERING that Korea pay damages and compensation to Mason for Korea’s breaches of the FTA and international law in an amount of $191,391,610.10;
3. ORDERING that Korea pay compound interest on the compensation ordered as calculated ... at a rate of 5% per annum until the date of the award, compounded monthly, or at a rate and compounding period to be determined by the Tribunal;
4. ORDERING that Korea pay compound interest on (b) and (c) from the date of the award until payment in full of the award at a rate of 5% per annum, compounded monthly, or at such rate and compounding period as the Tribunal determines will ensure full reparation;
5. ORDERING further or alternatively to the General Partner’s share of the relief requested under (b) to (d) that Korea pay damages and compensation to the General Partner for Korea’s breaches of the FTA and international law in an amount of $1,072,536.78, together with compound interest at a rate of 5% per annum ..., compounded monthly, or at a rate and compounding period to be determined by the Tribunal, until the date of the award, together with further

³⁹⁵ Transcript of Hearing on Preliminary Objections, Day 1, 2 October 2019, pp. 193:12-194:20 [Cross-examination of Mr. Satzinger]. ↩

³⁹⁶ Transcript of Hearing on Preliminary Objections, Day 1, 2 October 2019, p. 194:1-4 [Cross-examination of Mr. Satzinger]. ↩

³⁹⁷ Transcript of Hearing on Preliminary Objections, Day 1, 2 October 2019, pp. 206:19-207:16 [Cross-examination of Mr. Satzinger]. ↩

³⁹⁸ First WS Satzinger [CWS-2], ¶ 15; Transcript of Hearing on Preliminary Objections, Day 1, 2 October 2019, pp. 205:4-206:18 [Cross-examination of Mr. Satzinger]. ↩

³⁹⁹ Transcript of Hearing on Preliminary Objections, Day 1, 2 October 2019, p. 210:3-9 [Cross-examination of Mr. Satzinger]. ↩

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compound interest calculated on the same basis until payment of the award or calculated at such rate and compounding period as the Tribunal determines will ensure full reparation;

6. DECLARING that:
   1. the award of damages and interest is made net of applicable Korean taxes; and
   2. Korea may not deduct taxes in respect of the payment of the award of damages and interest;
7. ORDERING that Korea pay all of Mason’s costs incurred in relation to the proceedings, including attorneys’ fees and expenses, and the costs of the arbitration, and compound interest on all such costs; and
8. ORDERING such other relief as the Tribunal may deem appropriate.⁴⁰⁰

284. In the Reply, Claimants request that the Tribunal render an award:

1. DECLARING that Korea has breached the FTA in relation to Mason’s investments;
2. ORDERING that Korea pay damages and compensation to Mason for Korea’s breaches of the FTA and international law in an amount of $191,391,610.10;
3. ORDERING that Korea pay compound interest on the compensation ordered as calculated ... at a rate of 5% per annum until the date of the award, compounded monthly, or at a rate and compounding period to be determined by the Tribunal;
4. ORDERING that Korea pay compound interest on (b) and (c) from the date of the award until payment in full of the award at a rate of 5% per annum, compounded monthly, or at such rate and compounding period as the Tribunal determines will ensure full reparation;
5. ORDERING further or alternatively to the General Partner’s share of the relief requested under (b) to (d) that Korea pay damages and compensation to the General Partner for Korea’s breaches of the FTA and international law in an amount of $917,156 (alternatively, $2,233,093), together with compound interest at a rate of 5% per annum ..., compounded monthly, or at a rate and compounding period to be determined by the Tribunal, until the date of the award, together with further compound interest calculated on the same basis until payment of the award or calculated at such rate and compounding period as the Tribunal determines will ensure full reparation;
6. DECLARING that: i. the award of damages and interest is made net of applicable Korean taxes; and ii. Korea may not deduct taxes in respect of the payment of the award of damages and interest;

⁴⁰⁰ Amended Statement of Claim, ¶ 269. ↩

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9. ORDERING that Korea pay all of Mason’s costs incurred in relation to the proceedings, including attorneys’ fees and expenses, and the costs of the arbitration, and compound interest on all such costs; and
10. ORDERING such other relief as the Tribunal may deem appropriate.⁴⁰¹

285. In the Rejoinder on Objections to Jurisdiction, Claimants request that the Tribunal render an award:

1. DECLARING that the dispute is within the jurisdiction and competence of the Tribunal and that the claims made by Mason are admissible, rejecting all of Korea’s jurisdictional objections;
2. DECLARING that Korea has breached the FTA in relation to Mason’s investments, on the grounds referenced in Mason’s submissions on the merits;
3. ORDERING that Korea pay damages and compensation, and interest, to Mason, as specified in Mason’s submissions on the merits, for Korea’s breaches of the FTA and international law;
4. ORDERING that Korea pay all of Mason’s costs incurred in relation to the proceedings, including attorneys’ fees and expenses, and the costs of the arbitration, and compound interest on all such costs; and
5. ORDERING such other relief as the Tribunal may deem appropriate.⁴⁰²

B. Respondent’s request for relief

286. In the Statement of Defense and the Rejoinder, Respondent requests that the Tribunal:

1. Dismiss all claims presented by Mason in this arbitration with prejudice;
2. Award Korea all its costs associated with this arbitration, including legal fees and expenses, expert fees and expenses and its share of the fees and expenses of the Tribunal and the PCA; and
3. Award Korea any and all further or other relief as the Tribunal may deem appropriate.⁴⁰³

⁴⁰¹ Reply, ¶ 403. ↩

⁴⁰² Rejoinder on Objections to Jurisdiction, ¶ 114. ↩

⁴⁰³ Statement of Defense, ¶ 561; Rejoinder, ¶ 674. ↩

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V. JURISDICTION AND ADMISSIBILITY

287. At the outset of its reasoning, the Tribunal wishes to emphasize that it has carefully reviewed all of the arguments and evidence presented by the Parties. Although the Tribunal may not address all such arguments and evidence in full detail in its reasoning below, the Tribunal has nevertheless considered and taken them into account in arriving at its decision.

288. Article 11.1 of the FTA stipulates as follows in relation to its scope and coverage:

ARTICLE 11.1: SCOPE AND COVERAGE

1. This Chapter applies to measures adopted or maintained by a Party relating to:

(a) investors of the other Party;

(b) covered investments; and

(c) with respect to Articles 11.8 and 11.10, all investments in the territory of the Party.

...

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

(a) Central, regional, or local governments and authorities; and

(b) Non-governmental bodies in the exercise of powers delegated by central, regional, or local governments or authorities.⁴⁰⁴

289. Respondent raises four objections to jurisdiction and admissibility: (A) the impugned acts of the NPS and Respondent do not constitute “measures adopted or maintained” by Respondent; (B) even if the impugned acts were “measures”, they did not “relate to” Claimants; (C) the NPS’ conduct, including the Merger vote, is not attributable to Respondent; (D) the National Treatment claim falls within the scope of Respondent’s reservations under Article 11.12(2) of the FTA and is thus outside the Tribunal’s jurisdiction.

A. Whether the impugned acts constitute “measures adopted or maintained” by Respondent

1. Respondent’s position

290. Respondent argues that “none of the allegedly wrongful actions that underpin Claimants’ claims constitute a ‘measure adopted or maintained’ by Korea, as required to implicate the Treaty’s protections”.⁴⁰⁵ Respondent contends that Claimants’ claims are based upon the alleged actions

⁴⁰⁴ FTA [CLA-23], Art. 11.1. ↩

⁴⁰⁵ Statement of Defense, ¶ 193. ↩

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of President Park, Blue House officials, Minister Moon, and MHW officials to procure an affirmative vote for the merger, as well as CIO Hong’s actions to effect an affirmative vote for the merger, and that “none of this constitutes a ‘measure’ under the Treaty”.⁴⁰⁶

a) The proper interpretation of the term “measure”

291. It is Respondent’s position that the term “measure” is a broad, but limited, formulation under the Treaty, and it reflects a sovereign process of legislative or administrative rule-making and practice that is a final and official act of the State.⁴⁰⁷ Respondent therefore contends that that Claimants are required to show that the relevant State conduct is an exercise of sovereign authority.⁴⁰⁸

292. Respondent points to the Treaty definition of a “measure” as “includ[ing] any law, regulation, procedure, requirement, or practice”.⁴⁰⁹ Respondent argues that “a ‘measure’ refers to a formal outcome of a governmental process”, and “anything short of an act carrying that formal quality is incapable of being, as the Treaty requires, ‘adopted or maintained.’”⁴¹⁰

293. Respondent also contends that while Claimants argue that “the Treaty’s definition of ‘measure’ is not exhaustive ... there is nothing inherent in the term ‘include’ in this context that connotes non-exhaustiveness”.⁴¹¹ Respondent therefore argues that the Treaty only stipulates that the measures explicitly listed should be treated as measures under the Treaty, and that the actions upon which Claimants rely do not meet this standard.⁴¹² Respondent notes the Korean version of the FTA, whereby the word “pohamhada” parallels the word “includes” and simply means to “incorporate or put in together”.⁴¹³

294. Respondent further asserts that the doctrines of ejusem generis and noscitur a sociis, whereby a term must be interpreted based on the listed examples, further confirms that a “measure” is a formal and official act.⁴¹⁴ Interpreted in the context of government action, Respondent argues

⁴⁰⁶ Statement of Defense, ¶ 198. ↩

⁴⁰⁷ Statement of Defense, ¶ 205; Rejoinder ¶ 168. ↩

⁴⁰⁸ Statement of Defense, ¶ 211. ↩

⁴⁰⁹ Statement of Defense ¶ 199, citing FTA [CLA-23], Art. 11.1(1). ↩

⁴¹⁰ Statement of Defense, ¶ 200. ↩

⁴¹¹ Statement of Defense, ¶ 202. ↩

⁴¹² Statement of Defense, ¶ 202. ↩

⁴¹³ Rejoinder, ¶ 173. ↩

⁴¹⁴ Statement of Defence, ¶ 203. ↩

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that the listed terms are not “very broad”, as Claimants purport, but rather that each term “connotes a formal and binding direction from the State”.⁴¹⁵ Likewise, Respondent argues that the listed terms indicated in the Korean version of the FTA are also consistent with Respondent’s reading of the ordinary meaning of the term “measure” in the context of government action.⁴¹⁶

295. Respondent also points to the language of the Korean version of the FTA concerning the word “measure” (jochi), which refers to “taking necessary steps after a careful examination”.⁴¹⁷ Respondent argues that such usage of this word supports its conclusion that “measures” refers only to formal outcomes of government policies, “reflect[ing] the systematic process of ‘careful examination.’”⁴¹⁸

296. Respondent is of the view that its interpretation of the term “measure” is supported by the immediate and greater context of the FTA. Respondent maintains that the immediate context of “measure” in Article 11.1 of the FTA requires it to be “adopted or maintained”, terms which Respondent deems to only apply when a “State’s deliberative process is complete”.⁴¹⁹ Reiterating that these terms must be analyzed in the context of government action, Respondent asserts that the term “adopt” implies a formal approval process and rejects Claimants’ interpretation that a “measure” should not be read as representing the “final culmination of a State’s decision”.⁴²⁰

297. Beyond the immediate context of the term “measure”, Respondent cites the use of “measures” in other sections of the FTA to support its interpretation.⁴²¹ Respondent asserts that each of these uses “signify[] only an act derived from a State’s legislative or regulatory rule-making authority”.⁴²²

298. In accordance with Article 31(1) of the Vienna Convention on the Law of Treaties (the “VCLT”), Respondent also refers to the “object and purpose” of the FTA to support its argument regarding

⁴¹⁵ Rejoinder, ¶¶ 178-179. ↩

⁴¹⁶ Rejoinder, ¶¶ 180-181. ↩

⁴¹⁷ Statement of Defense, ¶ 204, citing Standard Korean Language Dictionary (online), “조치,” accessed on 12 October 2020 [R-334]. ↩

⁴¹⁸ Statement of Defense, ¶ 204. ↩

⁴¹⁹ Rejoinder, ¶ 184. ↩

⁴²⁰ Rejoinder, ¶ 186. ↩

⁴²¹ Statement of Defense, ¶ 206, referring to FTA [CLA-23], Arts. 1.3, 2.8(1), 2.9(2)(b), 2.11, 3.3, 20.2, 20.3(1)(a)-(b). ↩

⁴²² Statement of Defense, ¶ 206. ↩

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the meaning of “measures”.⁴²³ Noting that the preamble cites a primary purpose of the FTA as “establish[ing] clear and mutually advantageous rules”, Respondent asserts that the Treaty is not meant to regulate “alleged conduct that lacks any hallmarks of State conduct”.⁴²⁴

299. Respondent argues that Claimants’ interpretation is inconsistent with the Treaty’s objective set out in the preamble to establish a “stable and predictable environment for investment” because it would render each inchoate act or expression of opinion by a State official a “measure” for the purposes of a Treaty claim.⁴²⁵ Respondent also asserts that Claimants’ argument that Article 11.5 of the FTA would be rendered meaningless by Respondent’s interpretation is incorrect since the decision of law enforcement authorities to intervene and protect property would in fact constitute a “measure”.⁴²⁶

300. Moreover, Respondent submits that by arguing that Korea cannot dispute that it is “internationally responsible for conduct that is illegal or ultra vires”, Claimants have conflated the requirements under Articles 11.1(1) and 11.1(3), requiring the impugned conduct to be a “measure” and “attributable to Korea”, respectively.⁴²⁷

301. Respondent argues that even if the Tribunal considers the Treaty to “carry any ambiguity, the interpretive principle of in dubio mitius in international law counsels in favor of Korea’s interpretation”.⁴²⁸ Respondent relies upon a number of legal authorities in the investment treaty context to support its argument that the term “measure” is limited.⁴²⁹ Respondent rejects

⁴²³ Rejoinder, ¶ 169, citing VCLT [CLA-161], Art. 31(1). ↩

⁴²⁴ Statement of Defense, ¶ 207. ↩

⁴²⁵ Rejoinder, ¶ 190, referring to Reply, ¶ 110(a). ↩

⁴²⁶ Rejoinder, ¶ 193. ↩

⁴²⁷ Rejoinder, ¶¶ 191-192. ↩

⁴²⁸ Statement of Defense, ¶ 208. ↩

⁴²⁹ Statement of Defense, ¶ 209; citing Waste Management, Inc. v. United Mexican States (II), ICSID Case No. ARB(AF)/00/3, Award, 30 April 2004(“Waste Management v. Mexico II”) [CLA-19] (noting the tribunal held “statement from the Acapulco Mayor” that a change in performance under an agreement would occur “was not purporting to exercise legislative authority”); Robert Azinian and others v. The United Mexican States, ICSID Case No. ARB(AF)/97/2, Award, 1 November 1999 [RLA-84] (holding “contractual breaches per se could not constitute ‘measures’ for the purpose [of] Chapter 11 of NAFTA”); Railroad Development Corporation v. Republic of Guatemala, ICSID Case No. ARB/07/23, Second Decision on Objections to Jurisdiction, 18 May 2010 [RLA-123] (holding an action was not considered a measure under the investment treaty “until the [government resolution] was finally published”). ↩

[Page 80]

Claimants’ assertion that the legal authorities upon which it relies deal with entirely different propositions.⁴³⁰

302. Respondent also asserts that the authorities which Claimants cite in support of their “broad and inclusive approach” to the term “measures” do not serve their case.⁴³¹ Respondent argues that in all of the cases cited by Claimants the measures in question were in a “markedly different context”⁴³² or reflected “a formal legislative or administrative measure that a state could make in exercise of its sovereign power”.⁴³³

b) Whether the NPS’s vote in favor of the Merger is a “measure adopted or maintained” by Respondent

303. Respondent argues that Claimants’ depiction of the impugned conduct of the Blue House, the MHW, and the NPS as a collective “corrupt scheme” does not lower its burden of proving that each act of Korea is a “measure” for the purposes of the FTA.⁴³⁴ Accordingly, Respondent submits firstly that the NPS’s vote in favor of the merger is not a “measure”.⁴³⁵

304. Respondent contends that since “a shareholder vote in favor of the Merger is a purely commercial act lacking any feature incident to the exercise of sovereign power”,⁴³⁶ it cannot be considered a “measure” under the Treaty, and “if the Tribunal finds that the NPS’s vote was not a “measure”

⁴³⁰ Rejoinder, ¶ 197. ↩

⁴³¹ Statement of Defense, ¶ 210. ↩

⁴³² Rejoinder, ¶ 196. ↩

⁴³³ Statement of Defense, ¶ 210, citing Fisheries Jurisdiction Case (Spain v. Canada), I.C.J. Judgement on Jurisdiction, 4 December 1998 [CLA-112] (noting the ICJ’s analysis of the term “measure” “in the context of Canada’s reservation to the ICJ’s jurisdiction” renders this decision irrelevant”, and that the “measures” in that case were of a formal character); Saluka v. Czech Republic, UNCITRAL, Partial Award, 17 March 2006 (“Saluka v. Czech Republic”) [CLA-41] (asserting the “measure” analysed was “accomplished by the passage ... of a formal resolution); Saint-Gobain Performance Plastics Europe v. Bolivarian Republic of Venezuela, ICSID Case No. ARB/12/13, Decision on Liability and the Principles of Quantum, 30 December 2016 [CLA-137] (asserting this case is irrelevant for the same reasons as the Fisheries Jurisdiction case, and that the tribunal’s definition of measure supported that of Respondent); Canfor Corporation v. United States of America, UNCITRAL, Decision on Preliminary Question, 6 June 2006 [CLA-96] (arguing the tribunal held “any distinction between ‘law’ and ‘measures’ was not material, rendering the case irrelevant); Ethyl Corporation v. The Government of Canada, UNCITRAL, Award on Jurisdiction, 24 June 1998 [CLA-108] (noting that the tribunal expressed hesitation as to whether it could consider proposed legislation a “measure”, and “ultimately avoid[ed] that question”). ↩

⁴³⁴ Rejoinder, ¶ 205. ↩

⁴³⁵ Statement of Defense, ¶ 213; Transcript of Hearing on the Merits, Day 1, 21 March 2022, p. 200:8-12 [Respondent’s Opening Submission]. ↩

⁴³⁶ Statement of Defense, ¶ 213. ↩

[Page 81]

under the Treaty, then Claimants’ entire claim must fail”.⁴³⁷ Relying on Azinian v. Mexico, Respondent argues that expanding the term “measures” to cover such a transaction between commercial actors would improperly elevate ordinary transactions with public authorities into “potential international disputes”.⁴³⁸ Respondent asserts that “even accepting arguendo that the NPS is a public authority whose actions are attributable to Korea ... the conduct at issue is a shareholder vote that the NPS took unilaterally, not a transaction entered into with Mason, let alone a governmental act applicable to society at large”.⁴³⁹

305. Finally, Respondent asserts that “[w]hile ‘legislation’ or ‘regulation’ may constitute measures under the Treaty’s definition, not all conduct undertaken within the scope of powers granted by ‘legislation’ or ‘regulation’ will be a ‘measure.’”⁴⁴⁰ Accordingly, Respondent alleges that it is irrelevant whether the NPS acted pursuant to powers delegated through legislation and regulation.⁴⁴¹ Respondent also argues that even if the NPS was capable of adopting conduct that amounts to “measures”, this does not mean that all conduct of the NPS is a “measure”.⁴⁴²

c) Whether the conduct of President Park, Minister Moon, Blue House, the MHW, and NPS employees are “measures adopted or maintained” by Respondent

306. Respondent contends that the conduct of President Park, Minister Moon, other Blue House officials, the MHW, and the NPS does not qualify as a “measure adopted or maintained” by Respondent.⁴⁴³ Respondent argues that because the conduct of President Park, Minister Moon, the Blue House, the MHW, and the NPS was wholly derivative of the NPS’s Merger vote, which it argues does not constitute a “measure” under the Treaty, the alleged influence exerted in support of that vote by such officials also cannot constitute a “measure” under the Treaty either.⁴⁴⁴

⁴³⁷ Statement of Defense, ¶ 216. ↩

⁴³⁸ Statement of Defense, ¶ 216, relying on See Azinian and others v. The United Mexican States, ICSID Case No. ARB(AF)/97/2, Award, 1 November 1999 [RLA-84], ¶ 87. ↩

⁴³⁹ Statement of Defense, ¶ 214. ↩

⁴⁴⁰ Rejoinder, ¶ 208. ↩

⁴⁴¹ Rejoinder, ¶ 208; Transcript of Hearing on the Merits, Day 1, 21 March 2022, p. 201:4-8 [Respondent’s Opening Submission]. ↩

⁴⁴² Rejoinder, ¶ 215. ↩

⁴⁴³ Statement of Defense, ¶ 215. ↩

⁴⁴⁴ Statement of Defense, ¶ 216. ↩

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307. Respondent asserts that even if the actions of these entities are independently considered “measures” by the Tribunal, “allegations that each individual applied pressure on ostensible ‘subordinates’ with the goal of influencing the outcome of the NPS’s vote on the Merger ... would not constitute actionable ‘measures’ under Article 11.1 of the Treaty”.⁴⁴⁵

308. Respondent contends that while the conduct of the Korean officials “[a]t most ... is indicative of a general pursuit of a policy initiative by certain individuals in the Korean executive”, that “this conduct is plainly well short of any sovereign act of rule-making by means of a law, regulation, or formal administrative action”.⁴⁴⁶ Respondent compares these actions short of sovereign rule-making to how the U.S. President directs the Senate majority leader to support the passage of a particular law.⁴⁴⁷

309. Respondent submits that Claimants “cannot prove that the conduct of Blue House or MHW officials, or NPS employees, satisfies the Treaty threshold that any impugned conduct be a ‘measure’ of the Republic of Korea”.⁴⁴⁸ Respondent further asserts that Claimants’ attempts to characterize the conduct of government officials as “measures” are inappropriate.⁴⁴⁹ For instance, Respondent argues that not all of the President’s acts are law and that there is no support for the assertion that President Park “issued a specific requirement’⁴⁵⁰

310. Concerning Minister Moon, Respondent asserts that “the fact that Korean law delegates certain powers to [him] ... does not control whether his conduct ... is a Treaty measure.⁴⁵¹” Respondent submits that even if he subverted the NPS’s vote, which Respondent disputes, such conduct is still not a formal sovereign activity required to constitute a “measure”.⁴⁵²

311. Furthermore, Respondent asserts that the conduct of NPS employees does not rise to the level of a Treaty measure.⁴⁵³

⁴⁴⁵ Statement of Defense, ¶ 217. ↩

⁴⁴⁶ Statement of Defense, ¶ 219. ↩

⁴⁴⁷ Statement of Defense, ¶ 220. ↩

⁴⁴⁸ Statement of Defense, ¶ 221. ↩

⁴⁴⁹ Rejoinder, ¶¶ 211-212. ↩

⁴⁵⁰ Rejoinder, ¶ 213, citing Reply, ¶ 118. ↩

⁴⁵¹ Rejoinder, ¶ 214. ↩

⁴⁵² Rejoinder, ¶ 214. ↩

⁴⁵³ Rejoinder, ¶ 215. ↩

[Page 83]

312. Respondent concludes that Claimants’ focus on the alleged “abuse of power” and “process subversion” are unfounded because it is irrelevant to this issue that the conduct may be attributable to Korea or illegal under Korean law.⁴⁵⁴

2. Claimants’ position

313. Claimants submit that their claims in this dispute arise from measures “adopted by the central government of Korea, through the combined actions of several of its constituent organs”, thus “engag[ing] Korea’s international responsibility pursuant to the Treaty”.⁴⁵⁵

a) The proper interpretation of the term “measure”

314. Claimants submit that the FTA’s definition of “measure” is “expansive, yet non-exhaustive”, covering “the full gamut of ‘government action,’ including legislative, executive, administrative, judicial and other kinds of ‘regulatory action.’”⁴⁵⁶ Claimants argue that the ordinary meaning of the term, as supported in dictionary sources and the illustrative list in Article 1.4 of the FTA, is a “generic”, “broad”, “inclusive”, and “open-ended”.⁴⁵⁷ Claimants therefore reject Respondent’s position that the term requires “formal” conduct.⁴⁵⁸

315. In the immediate context of the term, Claimants contend that “measures adopted or maintained” reflects a single action or series of actions over a period of time.⁴⁵⁹ This is based on the FTA’s use of the word “adopt”, which Claimants define as “[t]o accept, consent to, and put into effective operation”.⁴⁶⁰ Claimants’ note the Korean version, 채택하다, confirms this meaning, as the expression means “[t]o choose such things as a work of art, an opinion, or a system and make use of it”.⁴⁶¹ Claimants dispute Respondent’s argument that only a State authority can “adopt or

⁴⁵⁴ Rejoinder, ¶¶ 216-217. ↩

⁴⁵⁵ Amended Statement of Claim, ¶ 115. ↩

⁴⁵⁶ Amended Statement of Claim, ¶¶ 116-17, citing FTA [CLA-23], Annex 11-B, 3(b). ↩

⁴⁵⁷ Rejoinder on Jurisdiction, ¶ 9. See also Transcript of Hearing on the Merits, Day 1, 21 March 2022, p. 86:4-13, 19-22 [Claimants’ Opening Submission]. ↩

⁴⁵⁸ Rejoinder on Jurisdiction, ¶ 11. ↩

⁴⁵⁹ Amended Statement of Claim, ¶ 117; Reply, ¶ 103. ↩

⁴⁶⁰ Reply, ¶ 104, citing Black’s Law Dictionary (online), “What is ADOPT? [R-318). ↩

⁴⁶¹ Reply, ¶ 104, citing Standard Korean Language Dictionary (online), 채택하다 [R-335]. ↩

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maintain” a “measure” as the use of the expression outside such context contradicts this position.⁴⁶²

316. Moreover, Claimants consider Respondent’s argument that Korea should not be responsible for opinions or “policy wishes” to be unfounded since Claimants’ claims are based on the actions of Respondent.⁴⁶³ In this case, Claimants contend that Respondent is responsible when its opinions or wishes are translated into “an action or series of actions”.⁴⁶⁴ Claimants also dispute Respondent’s view that certain “non-final” actions that breach the Treaty’s substantive protections are not capable of being “measures”.⁴⁶⁵

317. Claimants disagree with Respondent’s contention that the FTA “creates a ‘closed system of known measures.’”⁴⁶⁶ Noting that the word “includes” is used in two instances, including in respect of the term “measure” in the Treaty, Claimants argue that the term “measures” is not meant to exclusively reflect the items listed in the Treaty.⁴⁶⁷ Claimants further argue that basic principles of textual interpretation show that the use of the term “include” in the FTA does not ascribe to it the meaning of the word “means”, which the drafters of the FTA could have used if they sought to.⁴⁶⁸

318. Claimants also point to the broader context and use of the word “measures” throughout the Treaty as contradicting a restrictive use, as “even in the examples used by Korea[,] reference is made to ‘laws, regulations, and all other measures.’”⁴⁶⁹

319. Claimants contend that adopting a more restrictive definition of “measures” would render “absurd and arbitrary results that are inconsistent with ... the Treaty’s object and purpose”.⁴⁷⁰ Claimants argue that it would create an incentive for states to formally treat investors equitably,

⁴⁶² Rejoinder on Objections to Jurisction, ¶¶ 15-17, referring to for example FTA [CLA-23], Art. 1.3. (Measures can equally be “applied” or “implemented”); Art. 7.10.7 (“[a] Party may apply appropriate measures, including civil, criminal and administrative actions”); Art. 20.2 (“A Party shall adopt, maintain, and implement laws, regulations, and all other measures”) (emphasis added by Claimants). ↩

⁴⁶³ Rejoinder on Jurisdiction, ¶ 18. ↩

⁴⁶⁴ Rejoinder on Jurisdiction, ¶ 18. ↩

⁴⁶⁵ Rejoinder on Jurisdiction, ¶ 18. ↩

⁴⁶⁶ Reply, ¶ 100, referring to Statement of Defense, ¶ 202. ↩

⁴⁶⁷ Reply, ¶ 100. ↩

⁴⁶⁸ Reply, ¶ 100. ↩

⁴⁶⁹ Reply, ¶ 109, referring to Statement of Defense, ¶ 206; the FTA [CLA-23], Art. 20.2. ↩

⁴⁷⁰ Reply, ¶ 110. ↩

[Page 85]

while mistreating them through informal channels, and would also “carve[] out a huge swathe of [state] conduct from the scope of its international responsibility” as dictated by the International Law Commission’s Articles on the Responsibility of States for Internationally Wrongful Acts (“ILC Articles”).⁴⁷¹

320. Claimants also assert that Respondent’s interpretation would undermine the Treaty’s object and purpose to “establish clear and mutually advantageous rules governing...investment” and to “create a stable and predictable environment for investment”.⁴⁷² Claimants argue that placing arbitrary distinctions between the types of actions regulated and not regulated by the Treaty undermine the Treaty’s objective of clarity and that severely restricted the term “measures” impedes on the stability and predictability that the Treaty seeks to advance.⁴⁷³

321. Furthermore, Claimants reject Respondent’s suggestion that the meaning of “measures adopted or maintained” is necessitated by the “democratic corrective roles” executed by different governmental institutions.⁴⁷⁴ Claimants contend that measures taken by multiple State organs does not transform the nature of the act, and in this case, systems of control between State organs were used to facilitate the breach, rather than perform a corrective function.⁴⁷⁵

322. Moreover, Claimants contend that several substantive protections under the FTA would be rendered effectively meaningless with Respondent’s restrictive definition of “measures” and provides examples that a breach of Articles 11.5 or 11.6 of the FTA would fall outside the scope of it.⁴⁷⁶ Claimants assert that the destruction or physical seizure of an investment prohibited by these Articles, respectively, are unlikely to be reflected in formal legislation, regulations, or decisions, and thus would be excluded from the Treaty’s protection.⁴⁷⁷

323. Claimants also point to a number of legal authorities to support the principle that the term “measures” is meant to encompass any action or omission of the State.⁴⁷⁸ This includes an

⁴⁷¹ Reply, ¶ 110, citing ILC Articles [CLA-24], Art. 7. ↩

⁴⁷² Rejoinder on Jurisdiction, ¶ 19, citing FTA [CLA-23], Preamble. ↩

⁴⁷³ Rejoinder on Jurisdiction, ¶¶ 20-21. ↩

⁴⁷⁴ Reply, ¶¶ 106-107. ↩

⁴⁷⁵ Reply, ¶ 108. ↩

⁴⁷⁶ Reply, ¶ 111; Rejoinder on Jurisdiction, ¶ 23. ↩

⁴⁷⁷ Rejoinder on Jurisdiction, ¶ 23. ↩

⁴⁷⁸ Amended Statement of Claim, ¶¶ 118-20, citing Fisheries Jurisdiction (Spain v. Canada), ICJ Judgment, December 4, 1998 [CLA-112], ¶ 66; Saluka v. Czech Republic [CLA-41], ¶ 459 (defining measures as “any action or omission of the [State]”); Saint-Gobain Performance Plastics Europe v. Bolivarian Republic ↩

[Page 86]

analysis of an identical provision found in Article 201 of North American Free Trade Agreement (“NAFTA”), which Claimants contend supports their argument that the term “measure” is broad.⁴⁷⁹ Claimants also rely particularly tribunals constituted under the similar regimes to the FTA and NAFTA to claim that they came to the same definition of “measure”.⁴⁸⁰

324. Claimants further claim that there is no justification for Respondent’s argument that “[w]hile ‘legislation’ or ‘regulation’ may constitute measures ... not all conduct undertaken within the scope of powers granted by ‘legislation’ or ‘regulation’ will be a ‘measure’”.⁴⁸¹ Claimants also reject Respondent’s assertion that commercial conduct cannot form part of a “measure” since this view contradicts customary international law and the US’ position that the Article “does not draw distinctions based on the type of conduct at issue”.⁴⁸²

325. Finally, Claimants argue that Respondent’s legal authorities in support of a more restrictive definition of “measures” actually deal with entirely different issues and do not support Respondent’s interpretation.⁴⁸³

of Venezuela, ICSID Case No. ARB/12/13, Decision on Liability and the Principles of Quantum, December 30, 2016 [CLA-137], ¶ 394 (holding measures covered “all acts or omissions by the State that could amount to expropriatory conduct”); Canfor Corporation v. United States of America, UNCITRAL, Decision of Preliminary Question, June 6, 2006 [CLA-96] (noting measures included “all conduct for which the United States has State responsibility under international law”).

⁴⁷⁹ Transcript of Hearing on the Merits, Day 1, 21 March 2022, pp. 86:23-87:5 [Claimants’ Opening Submission]. See also Zachary Douglas, The International Law of Investment Claims (Cambridge Univ. Press, 2009) [CLA-49], p. 241 (commenting that “the Contracting States of NAFTA did not employ Article 201 as a device for narrowing the scope of Chapter 11 investment protection obligations”). ↩

⁴⁸⁰ Rejoinder on Jurisdiction, ¶ 26, relying on Frontier Petroleum v. Czech Republic, UNCITRAL, Final Award, November 12, 2010 [CLA-113], ¶ 223. ↩

⁴⁸¹ Rejoinder on Jurisdiction, ¶ 32, citing Rejoinder, ¶ 208. ↩

⁴⁸² Rejoinder on Jurisdiction, ¶ 32, citing Submission of the United States of America pursuant to Korea-US FTA Art. 11.20.4 [CLA-105], ¶ 3. See also Transcript of Hearing on the Merits, Day 1, 21 March 2022, pp. 89:20-90:12 [Claimants’ Opening Submission]. ↩

⁴⁸³ Reply, ¶¶ 113-114, citing Waste Management Inc. v. United Mexican States (II), ICSID Case No.ARB(AF)/00/3, Award, April 30, 2014 (Claimants note the tribunal “did not suggest that the alleged ‘measures’ ... were not ‘measures”); Robert Azinian and others v. The United Mexican States, ICSID Case No. ARB(AF)/97/2, Award, November 1, 1999 [RLA-84] (Claimants allege “[t]he tribunal did not discuss the meaning of ‘measures adopted or maintained’ at all”.); Railroad Development Corporation v. Republic of Guatemala, ICSID Case No. ARB/07/23, Second Decision on Objections to Jurisdiction, May 18, 2010 [RLA-123], ¶ 125 (considering “a ratione temporis objection that the relevant measure ... pre-dated the treaty’s entry into force”); Mesa Power v. Government of Canada, PCA Case No. 2012-17, Award, March 24, 2016 [CLA-120] (holding “‘measures’ ... must be understood broadly”); Rejoinder on Jurisdiction, ¶ 30. ↩

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b) Whether the NPS’s vote in favor of the Merger is a “measure adopted or maintained” by Respondent

326. As far as Respondent’s actions constitute “measures”, Claimants submit that “the actions and steps taken by CIO Hong and the National Pension Service ... unquestionably constitute measures adopted by the relevant organ of the Korean government”.⁴⁸⁴ Claimants assert the NPS’s procedures for the Merger vote were subverted, rendering corrupted the affirmative vote made by the NPS, which was done in exercise of the powers delegated to it by legislation and regulation.⁴⁸⁵

c) Whether the conduct of President Park, Minister Moon, Blue House, the MHW, and NPS employees are “measures adopted or maintained” by Respondent

327. Moreover, Claimants submit that “the actions and steps taken by President Park and the officials at the Blue House to procure an affirmative Merger vote” and “the actions and steps taken by Minister Moon and the officials at the MHW to procure an affirmative vote”, also “unquestionably constitute measures adopted by the relevant organ of the Korean government”.⁴⁸⁶

328. Claimants assert that this conduct was “no ‘pursuit of a policy initiative’ or the mere ‘application of pressure’” as Respondent asserts, but rather the “direct exploitation and abuse of structures of control and supervision”.⁴⁸⁷ Claimants contend that the impugned conduct was all committed under “the clout of official authority”, and that “without that authority which demanded compliance, their efforts would have been entirely ineffectual”.⁴⁸⁸

3. U.S. submission

329. The United States submits that Article 11.1.3(a) of the FTA confirms that measures adopted or maintained by a governmental body or authority of a Party are attributable to that Party and that there is no distinction based on the type of impugned conduct.⁴⁸⁹ The United States also argues that attribution to a non-governmental body, such as a state enterprise, can only be established if

⁴⁸⁴ Reply, ¶ 115. ↩

⁴⁸⁵ Reply, ¶ 118. ↩

⁴⁸⁶ Reply, ¶ 115. ↩

⁴⁸⁷ Reply, ¶ 119, referring to Statement of Defense, ¶ 219. ↩

⁴⁸⁸ Reply, ¶ 120. ↩

⁴⁸⁹ U.S. Submission, ¶ 3, relying on ILC Articles [CLA-166], Art. 4, cmt. 6. ↩

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the impugned conduct is governmental in nature and “the measures adopted or maintained by the non-governmental body are undertaken ‘in the exercise of powers delegated by’ the government or an authority of a Party”.⁴⁹⁰ The United States further states that pursuant to Article 16.9 of the FTA, this “delegation” can include “a legislative grant, and a government order, directive, or other act, transferring to the ... state enterprise, or authorizing the exercise by the ... state enterprise of, governmental authority”.⁴⁹¹ The United States concludes that, if the impugned conduct of the non-governmental body falls outside the scope of the delegation of authority, then this does not constitute a “measure” under Article 11.1 of the FTA.⁴⁹²

4. Tribunal’s analysis

330. The Tribunal will first address the interpretation of the term “measure” found in Article 11.1 of the FTA before turning to the question of whether the impugned conduct of Respondent constitutes a measure within the meaning of the FTA.

a) Interpretation of the term “measure”

331. In accordance with Article 31(1) of the VCLT, the Tribunal will begin its analysis with an assessment of the ordinary meaning of the term “measure”.

332. Article 11.1(3) of the FTA provides that for purposes of the investment chapter, “measures adopted or maintained by a Party means measures adopted or maintained by: (a) central, regional, or local governments and authorities; and (b) non-governmental bodies in the exercise of powers delegated by central, regional, or local governments or authorities”.

333. Article 1.4 of the FTA further defines the term “measure” as “includ[ing] any law, regulation, procedure, requirement, or practice”.

334. In the Tribunal’s view, the ordinary meaning of the term “measure”, as defined in Articles 11.1(3) and 1.4 of the FTA, is sufficiently wide to encompass both formal and informal conduct of the host State, independent of whether it is the result of a sovereign process of legislative or administrative rule-making or practice.

⁴⁹⁰ U.S. Submission, ¶¶ 4-5, relying on ILC Articles [CLA-166], Art. 5. ↩

⁴⁹¹ U.S. Submission, ¶ 4. ↩

⁴⁹² U.S. Submission, ¶ 4. ↩

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335. First, no limitation on the nature of host State conduct can be inferred from the term “measure” itself. The dictionaries relied upon by Respondent⁴⁹³ contain general, broad definitions of the term “measure” and do not suggest that the common understanding of the term is limited to the formal outcome of a governmental process.

336. Second, as the verb “to include” makes clear, the list of examples provided in Article 1.4 of the FTA is not meant to be exhaustive. Yet even if it were or if one seeks to establish the meaning of the term “measure” by looking at the examples listed, their ordinary meaning does not suggest that informal or commercial conduct be excluded from the ambit of the Treaty. While the first two examples – laws and regulations – indeed refer to sovereign legislative or administrative rule-making processes, the examples “procedure”, “requirement” or “practice” are generic terms that are used in different contexts and with different meanings and are not limited to the exercise of sovereign authority by the host State.

337. Third, no other meaning can be derived from the addition in Article 11.1(3) of the FTA that measures are “adopted or maintained” by a Treaty party. In the Tribunal’s view, the ordinary meaning of these two verbs is to clarify that both measures that have just been taken (“adopted”) and measures that were taken some time ago but are still upheld (“maintained”) fall within the scope of the Treaty.

338. This interpretation of the ordinary meaning of the term “measure” is also in line with the jurisprudence of other international courts and tribunals. As the International Court of Justice (the “ICJ”) observed in Fisheries Jurisdiction (Spain v. Canada), “in its ordinary sense the word [“measure”] is wide enough to cover any act, step or proceeding, and imposes no particular limit on their material content or the aim pursued thereby”.⁴⁹⁴

339. Whether or not commercial conduct can give rise to a Treaty violation might be an issue in the context of State attribution but there is no textual basis for outright excluding all conduct that could potentially be qualified as informal or commercial from the ambit of the Treaty.

⁴⁹³ Merriam-Webster Dictionary, Definition of “Measure”, accessed on 29 October 2020 [R-325] (“a step planned or taken as a means to an end”); Lexico (Oxford University) Dictionary, Definition of “Measure”, accessed on 29 October 2020 [R-323] (“a plan or course of action taken to achieve a particular purpose”); Oxford English Dictionary, Definition of “Measure”, accessed on 29 October 2020 [R-329] (“a plan or course of action”). ↩

⁴⁹⁴ Fisheries Jurisdiction (Spain v. Canada), ICJ Judgment, 4 December 4 1998 [CLA-112], ¶ 66; see also Saluka v. Czech Republic [CLA-41], ¶ 459; Saint-Gobain Performance Plastics Europe v. Bolivarian Republic of Venezuela, ICSID Case No. ARB/12/13, Decision on Liability and the Principles of Quantum, 30 December 2016 [CLA-137], ¶ 394. ↩

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340. The Tribunal therefore concludes that the term “measure” in the sense of Article 11.1 of the FTA comprises all acts or omissions by the host State. In the Tribunal’s view, there are no indications in the text of the Treaty that the term “measure” is limited to a sovereign process of legislative or administrative rule-making and practice that is a final and official act of the State, as suggested by Respondent.

341. This definition also finds support in the Treaty’s object and purpose (Article 31(1) VCLT). The Tribunal agrees with Claimants that limiting the term “measures” to formal conduct involving the exercise of sovereign authority would run counter to the Treaty’s object and purpose. Otherwise, host States would be able to escape their obligations under the Treaty, such as the obligation to accord covered investments fair and equitable treatment and full protection and security under Article 11.5(1) of the FTA, by avoiding formal governmental decision-making processes and engaging in informal conduct.

342. Furthermore, such a narrow reading of the term “measure” would conflict with the rules on State attribution. In that context, Respondent appears to accept that commercial conduct of a State organ can be attributed to the State under Article 11.1(3)(a) of the FTA⁴⁹⁵ (while, according to Respondent, it cannot be attributed in the case of non-governmental bodies ⁴⁹⁶). Yet this distinction between sovereign and commercial acts in the context of State attribution would be rendered meaningless if one were to outright exclude all commercial conduct from the ambit of the Treaty.

343. Consequently, the Tribunal finds that the term “measure” comprises both formal and informal acts or omissions of the host State, independent of whether they involve the exercise of sovereign authority.

b) Qualification of Respondent’s conduct

344. The Tribunal will now address the question of whether the impugned conduct of Respondent constitutes “measures” within the meaning of Article 11.1 of the FTA.

⁴⁹⁵ Statement of Defense, ¶ 245 (stating that Articles 4 and 5 of the ILC Articles provide a “useful guide” for the interpretation of Article 11.1.3 of the FTA “for example, as to the dividing line between sovereign and commercial acts”). ↩

⁴⁹⁶ Statement of Defense, ¶¶ 281-285. ↩

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345. According to Claimants, the following series of actions and steps constitute “measures” adopted by the relevant organ of the Korean government:⁴⁹⁷

(a) The actions and steps taken by President Park and the officials at the Blue House to procure an affirmative Merger vote, including their directions to the MHW, a ministry organized under the Presidency, and MHW officials;

(b) The actions and steps taken by Minister Moon and the officials at the MHW to procure an affirmative vote, including their directions to CIO Hong and NPS officials in the performance of their public duties;

(c) The actions and steps taken by CIO Hong and the National Pension Service, including its officials’ subversion of its proper processes, in order to effect an affirmative vote for the Merger and consummate the corrupt scheme.

346. By contrast, Respondent submits that the NPS vote in favor of the Merger was not a “measure” as it was a purely commercial act lacking any exercise of sovereign power.⁴⁹⁸ Furthermore, Respondent denies that any alleged Blue House, MHW, and NPS conduct before the Merger vote constitutes a “measure” under the Treaty as it merely involved the general pursuit of a policy initiative by certain individuals in the Korean executive and did not implicate any rule-making or enforcement authority.⁴⁹⁹

347. In light of the Tribunal’s prior finding that “measures” need not involve the formal exercise of sovereign authority, and without prejudice to the issue of State attribution or the merits of the Treaty violations alleged by Claimants, the Tribunal considers that both the NPS vote in favor of the Merger and the conduct of officials at the Blue House, the MHW, and the NPS constitute “measures adopted or maintained” Respondent within the meaning of Article 11.1 of the FTA.

348. Consequently, the Tribunal dismisses Respondent’s jurisdictional objection that Claimants’ claims are not based on “measures adopted or maintained” by Respondent.

⁴⁹⁷ Amended Statement of Claim, ¶ 121. ↩

⁴⁹⁸ Statement of Defense, ¶ 213. ↩

⁴⁹⁹ Statement of Defense, ¶ 219. ↩

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B. Whether Respondent’s measures “relate to” Claimants and their investments

1. Respondent’s position

349. Respondent argues that even if the Tribunal considers that the actions underlying Claimants’ claims constitute a “measure” adopted by Korea, “Mason has not proven that such measures ‘relate[d] to’ it, or to its investments in SC&T and SEC”.⁵⁰⁰ Respondent specifically submits that “an act, when undertaken, does not ‘relate to’ a subject by virtue of the fact that the subject indirectly experiences consequences of the act at a later time”.⁵⁰¹ Therefore, Respondent argues that because the NPS’s Merger vote had only an indirect and consequential effect on Claimants’ investment in SC&T and no effect whatsoever on Claimants’ investment in SEC, the alleged measures should not be considered to “relate to” Claimants or their investments.⁵⁰²

350. Respondent contends that the requirement that a measure “relates to” an investor is intended to “circumscrib[e] the otherwise limitless liability State parties would have to investors whose investments are incidentally or consequentially impacted by a State measure”.⁵⁰³ Respondent relies upon Methanex v. United States to support the principle that “relating to”, at least in the context of NAFTA, “signifies something more than the mere effect of a measure on an investor or an investment and ... requires a legally significant connection between them” (emphasis added by Respondent).⁵⁰⁴ Respondent also relies on the decision in Dickson Car Wheel v. Mexico to reject the assertion that a State can incur responsibility for every consequential or corollary effect of a State’s actions.⁵⁰⁵ While it concedes that the words “relating to” in Article 11.1(1) of the Treaty require that there be a legally significant connection, Respondent submits that a legally significant connection must be more than just “any” connection.⁵⁰⁶

351. Respondent also points to Resolute Forest Products v. Canada to argue that “a measure which adversely affected the claimant in a tangential or merely consequential way will not” satisfy

⁵⁰⁰ Statement of Defense, ¶ 194. ↩

⁵⁰¹ Statement of Defense, ¶ 224. ↩

⁵⁰² Statement of Defense, ¶ 224. ↩

⁵⁰³ Statement of Defense, ¶ 225. ↩

⁵⁰⁴ Statement of Defense, ¶ 226, citing Methanex Corporation v. United States of America, UNCITRAL, Partial Award (“Methanex v. US”) [RLA-92], ¶ 147. ↩

⁵⁰⁵ Rejoinder, ¶ 226, relying on Dickson Car Wheel Company (U.S.A.) v. United Mexican States, U.S.-Mexico General Claims Commission, 4 R.I.A.A. 669, July 1931 [RLA-206]. ↩

⁵⁰⁶ Respondent’s PHB, ¶ 4. ↩

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NAFTA’s “relating to” requirement.⁵⁰⁷ Based on this precedent as well as the U.S. Submission, Respondent submits that in order to meet the “relating to” requirement, its conduct must have had a legally significant connection to Claimants and their investment; a negative impact on Claimants alone will not meet the test.⁵⁰⁸ Respondent asserts that this requirement does not equate to Claimants’ burden of establishing causation under Article 11.16(a)(ii) of the FTA.⁵⁰⁹

352. Furthermore, Respondent submits that because the phrase must be considered in its proper context, the Treaty does not support Claimants’ broader interpretation of the “relating to” requirement.⁵¹⁰ Respondent asserts that the “relating to” requirement is meant to restrict the group of potential claimants against Respondent under the Treaty and that therefore, requiring a legally significant connection is consistent with this objective, as well as with the Contracting Parties’ agreement not to accord to each other’s investors greater substantive protections than domestic investors have under domestic law.⁵¹¹ Furthermore, Respondent argues that if Korea’s measures had a similar adverse effect on other domestic and foreign shareholders then there is no legally sufficient connection between the measures and Claimants’ or Claimants’ investments.⁵¹²

353. Accordingly, Respondent contends that neither the NPS’s Merger vote, nor any preceding conduct had a direct or legally significant connection to Claimants’ investment.⁵¹³ Respondent submits that “[w]hen the NPS cast its vote on the Merger, the vote, on its own, was meaningless

⁵⁰⁷ Statement of Defense, ¶ 229, citing Resolute Forest Products Inc. v. Government of Canada, PCA Case No. 2016-13, Decision on Jurisdiction and Admissibility, 30 January 2018 [RLA-167], ¶ 242; Respondent’s PHB, ¶ 5. See also Transcript of Hearing on the Merits, Day 6, 11 May 2022, p. 1023:2-13 [Respondent’s Closing Submission]. ↩

⁵⁰⁸ Statement of Defense, ¶ 230; Rejoinder, ¶ 219, relying on U.S. Submission, ¶ 7; Respondent’s PHB, ¶¶ 4-5. See also Transcript of Hearing on the Merits, Day 1, 21 March 2022, p. 202:17-20 [Respondent’s Opening Submission]. ↩

⁵⁰⁹ Rejoinder, ¶ 225, relying on Resolute Forest Products Inc. v. Government of Canada, PCA Case No. 2016-13, Decision on Jurisdiction and Admissibility, 30 January 2018 [RLA-86], ¶ 242 (“[T]he Tribunal concludes that there must exist a ‘legally significant connection’ between the measure and the claimant or its investment. It agrees with the Apotex II tribunal in rejecting the application of a legal test of causation. Chapter Eleven’s substantive requirements of causation should be analyzed when deciding on the merits of the claim”.); Transcript of Hearing on the Merits, Day 6, 11 May 2022, pp. 1021:14-1023:7 [Respondent’s Closing Submission]. ↩

⁵¹⁰ Rejoinder, ¶ 222, relying on VCLT [CLA-161], Arts. 31(1) and (2). See also Richard Gardiner, Treaty Interpretation (2nd ed. Oxford Univ. Press 2015) [RLA-227], pp. 197, 202. ↩

⁵¹¹ Rejoinder, ¶¶ 223-224. ↩

⁵¹² Respondent’s PHB, ¶ 7. ↩

⁵¹³ Statement of Defense, ¶¶ 231-232. See also Transcript of Hearing on the Merits, Day 6, 11 May 2022, pp. 1023:8-1028:18 [Respondent’s Closing Submission]. ↩

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to Claimants and their investment in SC&T”.⁵¹⁴ Respondent further notes that while the NPS’s vote “may have had an indirect consequential effect” on SC&T and Cheil shareholders, “it did not have a ‘legally significant connection’ to Mason’s investment”.⁵¹⁵ As such, Respondent submits that finding this action to have “related to” Mason’s investment “because of some indirect and distant consequential impact ... would eliminate this important threshold to liability expressly enshrined in the Treaty”.⁵¹⁶

354. While it notes that “[i]ntent may be relevant” for determining a legally sufficient connection, Respondent disputes Claimants’ argument that SC&T shareholders were the specific targets of Respondent’s scheme, as well as Claimants’ argument that Korea’s measures were “specifically directed at Mason and other foreign hedge fund groups invested in the Samsung Group”.⁵¹⁷ Respondent asserts that Claimants’ reliance on the Seoul High Court, Korean press articles, and other documents, do not in fact demonstrate that the Blue House held discriminatory intent against foreign hedge funds.⁵¹⁸ Moreover, Respondent submits that there is no evidence suggesting that the NPS even considered the consequences of the Merger on other SC&T shareholders. Rather, relying on Korean court testimony of Investment Committee members, Respondent maintains that the NPS only considered the impact of the Merger on the NPS’ portfolio.⁵¹⁹

355. Even assuming arguendo that the NPS voted on the Merger to help the Lee family, such intention, according to Respondent, would not bring SC&’s other shareholders—including Claimants— into a relationship of apparent proximity with the NPS.⁵²⁰ After all, the NPS, like every other

⁵¹⁴ Statement of Defense, ¶ 232. ↩

⁵¹⁵ Statement of Defense, ¶ 233. ↩

⁵¹⁶ Statement of Defense, ¶ 234. ↩

⁵¹⁷ Respondent’s PHB, ¶ 19; Rejoinder, ¶¶ 229-230; Transcript of Hearing on the Merits, Day 6, 11 May 2022, pp. 1024:1-1027:8 [Respondent’s Closing Submission]; Respondent also rejects the claim that any awareness of a potential investment treaty claim implies liability. See Transcript of Hearing on the Merits, Day 6, 11 May 2022, pp. 1071:14-1072:7 [Respondent’s Closing Submission]. ↩

⁵¹⁸ Respondent’s PHB, ¶¶ 20-22. See also Transcript of Hearing on the Merits, Day 6, 11 May 2022, pp. 1027:9-1028:18 [Respondent’s Closing Submission]. ↩

⁵¹⁹ Respondent’s PHB, ¶¶ 23-25, relying on [Redacted]’s Minutes of the Investment Committee Meeting, 10 July 2015 [C-145], p. 9; Transcript of Court Testimony of [Redacted] (Moon/Hong Seoul Central District Court), 17 April 2017 [R-485], p. 4; Transcript of Court Testimony of [Redacted] (Moon/Hong Seoul Central District Court), 10 April 2017 [R-483], p. 4; Transcript of Court Testimony of [Redacted] (Moon/Hong Seoul Central District Court), 5 April 2017 [R-482], p. 2. ↩

⁵²⁰ Transcript of Hearing on the Merits, Day 1, 21 March 2022, p. 205:8-12 [Respondent’s Opening Submission]. ↩

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shareholder in SC&T, was “free to vote however it wanted for whatever motivation, subject only to its fiduciary duties”, which it owed to Korean pensioners.⁵²¹

356. Furthermore, Respondent argues that because Claimants’ interpretation would still leave States open to potentially indeterminate liability given the numerous investors in SC&T and the absence of direct impacts on such investors, Claimants’ position on the “relating to” requirement is not consistent with its purpose to prevent claims by an “indeterminate class of investors” as expressed in Methanex v. United States.⁵²²

357. Respondent also objects to Claimants’ argument that the class of potentially impacted investors is readily ascertainable and thus avoids indeterminate liability.⁵²³ Relying on Resolute Forest Products v. Canada to support this objection, Respondent argues that ascertaining a class of potentially impacted investors does not establish a legally significant connection.⁵²⁴ It further submits that there is no evidence establishing that Korea’s alleged conduct leading to the Merger was meant to extract value from SC&T’s shareholders.⁵²⁵ Respondent rejects Claimants’ reliance on several Korean court decisions, none of which, Respondent argues, prove a purpose to extract value.⁵²⁶ Even if the Merger was to extract value from SC&T shareholders, Respondent submits that this would only have been an incidental consequence.⁵²⁷ In any event, Respondent contends that the idea that the Merger extracted value is based on flawed economic logic since it was based on a Merger Ratio determined by market prices.⁵²⁸

⁵²¹ Transcript of Hearing on the Merits, Day 1, 21 March 2022, p. 205:13-17 [Respondent’s Opening Submission]. ↩

⁵²² Rejoinder, ¶ 231. See also Transcript of Hearing on the Merits, Day 1, 21 March 2022, p. 203:7-18 [Respondent’s Opening Submission]. ↩

⁵²³ Respondent’s PHB, ¶¶ 8-17. ↩

⁵²⁴ Respondent’s PHB, ¶¶ 9-11, relying on Resolute Forest Products v. Canada [RLA-167], ¶¶ 4, 243-246. ↩

⁵²⁵ Respondent’s PHB, ¶ 14. ↩

⁵²⁶ Respondent’s PHB, ¶ 14; Transcript of Hearing on the Merits, Day 1, 21 March 2022, pp. 249:9-250:10; Transcript of Hearing on the Merits, Day 5, pp. 809:17-811:16; Transcript of Hearing on the Merits, Day 6, 11 May 2022, pp. 1024:1-1027:8 [Respondent’s Closing Submission]. ↩

⁵²⁷ Respondent’s PHB, ¶ 15. ↩

⁵²⁸ Respondent’s PHB, ¶ 16. ↩

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358. Concerning the SEC shares, Respondent contends that the purported nexus with Claimants’ investment is even more remote because the impugned conduct did not concern SEC’s shareholders.⁵²⁹

359. Respondent concludes that the actions of Korean officials and NPS employees do not satisfy the “relating to” requirement, as “the alleged measures were not ‘expressly directed at’ Mason”.⁵³⁰ Therefore, since Claimants were “at best, only indirectly impacted by the NPS’s vote”,⁵³¹ Respondent contends that this conduct should not be considered “related to” Claimants or their investments, even if they are considered “measures” under the Treaty.⁵³²

2. Claimants’ position

360. Claimants submit that the phrase “relating to” in Article 11.1(1) of the FTA requires that there be a legally significant connection between Respondent’s measures and Claimants or Claimants’ investment.⁵³³ Claimants contend that Respondent has failed to show that the “relating to” requirement “imposes any requirement beyond a showing that the measures have a connection with the investment and the investor that is more than merely tangential” and cites Apotex v. United States in claiming that “there is no reason to interpret [a sufficient connection] as an unduly narrow gateway to arbitral justice”.⁵³⁴

361. Claimants contend that Article 31(1) of the ILC Articles and their Commentary provide for the requisite connection, whereby “[t]he responsible State is under an obligation to make full reparation for the injury caused by the internationally wrongful act”.⁵³⁵ According to Claimants, the Commentary to the ILC Articles with respect to this Article requires a sufficient causal link which is not too remote, a requirement that is informed by whether State organs deliberately caused the impugned harm and whether the harm was within the ambit of the breached rule.⁵³⁶ Relying on the S.D. Myers tribunal in the context of a NAFTA claim, Claimants assert that the

⁵²⁹ Rejoinder, ¶ 227. See also Transcript of Hearing on the Merits, Day 1, 21 March 2022, pp. 206:18-207:16 [Respondent’s Opening Submission]. ↩

⁵³⁰ Statement of Defense, ¶ 234. ↩

⁵³¹ Statement of Defense, ¶ 234. ↩

⁵³² Statement of Defense, ¶ 234. ↩

⁵³³ Reply, ¶ 124; Claimants’ PHB, ¶ 128. ↩

⁵³⁴ Rejoinder on Jurisdiction, ¶ 44, citing Apotex Holdings Inc. and Apotex Inc v United States of America, ICSID Case No. ARB(AF)/12/1, Award, August 25, 2014 [CLA-211], ¶ 6.28. ↩

⁵³⁵ Claimants’ PHB, ¶ 129, citing ILC Draft Articles [CLA-166], Art. 31(1). ↩

⁵³⁶ Claimants’ PHB, ¶ 129, referring to ILC Draft Articles [CLA-166], Art. 31, cmt. 10. ↩

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causal link is not identical in relation to every breach of an international obligation and does not require that the damage was foreseeable as long as it was not too remote.⁵³⁷

362. It is Claimants’ position that the measures taken do not need to be directly and expressly directed at the investor, and note that the FTA “does not limit the types of connections that might exist between a measure and an investor or a covered investment”.⁵³⁸ Claimants submit that both the Methanex and Resolute tribunals “agree[d] that the “relating to” language does not require that the measure be adopted for the purpose of causing loss to the investor or be ‘expressly directed at’ that investor”.⁵³⁹ Claimants also assert that Respondent’s reliance on the decision in Dickson Car Wheel is neither relevant nor supportive of Respondent’s interpretation as it does not concern the “relating to” language of the FTA.⁵⁴⁰

363. Claimants contend that neither the Treaty nor the authorities relied upon by Respondent support the contention that the “relating to” requirement imposes an onerous limitation to jurisdiction as the ordinary meaning of the phrase simply means that there is a relation or reference between two things.⁵⁴¹ Claimants further submit that the context of Article 11.1(1) of the FTA does not support Respondent’s restrictive interpretation because the other limitations in the Article do not mean that the “relating to” should be more limiting than its ordinary meaning.⁵⁴² Claimants assert that Respondent provides no valid explanation for its claim that the restrictive interpretation is consistent with the Treaty’s objectives.⁵⁴³

364. Claimants also assert that a restrictive interpretation would wrongly require a legal causation test, thereby conflating jurisdiction and causation and rendering the causation requirement under Article 11.16(a)(ii) of the FTA meaningless.⁵⁴⁴

⁵³⁷ Claimants’ PHB, ¶ 130, relying on to S.D. Myers, Inc. v. Government of Canada, UNCITRAL, Second Partial Award, 21 October 2002 (“S.D. Myers v. Canada”) [RLA-93], ¶¶ 159-160. ↩

⁵³⁸ Reply, ¶¶ 124-125. See also Transcript of Hearing on the Merits, Day 6, 11 May 2022, pp. 1018:8-1019:22 [Claimants’ Closing Submission]. ↩

⁵³⁹ Reply, ¶ 127. ↩

⁵⁴⁰ Rejoinder on Jurisdiction, ¶ 50, referring to Dickson Car Wheel Company (U.S.A.) v. United Mexican States, U.S.-Mexico General Claims Commission, 4 R.I.A.A. 669, July 1931 [RLA-206]. ↩

⁵⁴¹ Rejoinder on Jurisdiction, ¶¶ 39-40. ↩

⁵⁴² Rejoinder on Jurisdiction, ¶ 41. ↩

⁵⁴³ Rejoinder on Jurisdiction, ¶ 41. ↩

⁵⁴⁴ Reply, ¶¶ 126, 128-129, citing Resolute Forest Products Inc v Government of Canada, PCA Case No. 2016-13, Decision on Jurisdiction and Admissibility, dated January 30, 2018 [RLA-167], ¶ 242; Apotex ↩

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365. It is Claimants’ position that the impact of Korea’s measures on Mason and its investments in SC&T and SEC was not merely “tangential” or “consequential”.⁵⁴⁵ Rather, Claimants argue that the impugned actions in this case, which were directed at procuring the approval of the merger at a ratio which grossly overvalued Cheil and undervalued SC&T, most directly affected the shareholders in the Samsung Group at the date of the Merger.⁵⁴⁶ Claimants assert specifically that SC&T’s shareholders, including Claimants, were the specific targets of Respondent’s scheme and that Respondent knew that its conduct would impact foreign investors, such as Mason, leading to liability under the Treaty.⁵⁴⁷ Claimants further contend that Respondent’s measures were part of a “concerted, nationalistic and public campaign directed against foreign hedge funds, including Mason”.⁵⁴⁸ Given that Claimants are a foreign hedge fund, they argue that this means that the measures were specifically directed against them.⁵⁴⁹

366. Claimants assert that it is not relevant that Respondent’s alleged breaches had similar effects on domestic shareholders which are unprotected by the Treaty nor are Claimants required to show specific or distinct consequences suffered by Claimants as a result of Respondent’s breaches.⁵⁵⁰ Such a requirement, Claimants argue, would run contrary to the rule that a state is responsible for all natural consequences of its breaches.⁵⁵¹ Furthermore, Claimants contend that there is no requirement under international law to demonstrate that the purpose of Respondent’s measures were to discourage investment in the Samsung Group and to impede on the exercise of governance powers by foreign hedge funds.⁵⁵² However, Claimants note the evidence supports such findings nonetheless.⁵⁵³

Holdings Inc. v. United States of America, ICSID Case No. ARB(AF)/12/1, Award, August 25, 2014 [RLA-147], ¶¶ 6.20, 6.26; Rejoinder on Jurisdiction, ¶ 43.

⁵⁴⁵ Rejoinder on Jurisdiction, ¶ 45; Claimants’ PHB, ¶¶ 137-138. See also Transcript of Hearing on the Merits, Day 6, 11 May 2022, pp. 1014:13-1018:14 [Claimants’ Closing Submission]. ↩

⁵⁴⁶ Amended Statement of Claim, ¶ 124. ↩

⁵⁴⁷ Reply, ¶ 131; Claimants’ PHB, ¶ 140; see also Transcript of Hearing on the Merits, Day 6, 11 May 2022, pp. 1014:13-1018:14 [Claimants’ Closing Submission]. Claimants also assert that the effects of Korea’s conduct on Mason was contemplated because Korean officials knew that they might be faced with an investment treaty claim. See Transcript of Hearing on the Merits, Day 6, 11 May 2022, p. 1071:4-10 [Claimants’ Closing Submission]. ↩

⁵⁴⁸ Reply, ¶ 131. ↩

⁵⁴⁹ Reply, ¶ 131. ↩

⁵⁵⁰ Claimants’ PHB, ¶¶ 133-134. ↩

⁵⁵¹ Claimants’ PHB, ¶ 134. ↩

⁵⁵² Claimants’ PHB, ¶ 135. ↩

⁵⁵³ Claimants’ PHB, ¶ 135. ↩

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367. Moreover, Claimants note that the Apotex tribunal observed that there is indeed a threshold to ensure that claims from wholly indeterminate and unknown classes of claimants are avoided, and similarly that the tribunal in Methanex did indeed hold that the “relating to” requirement “serves to ensure that claims cannot be brought by an ‘indeterminate class of investors.’”⁵⁵⁴ However, Claimants assert that applying the threshold to the facts requires practical common-sense, and because, in this case, “[t]his was a defined and determinate class of which Mason was a significant member”, Claimants contend that “[t]he relationship between the measures complained of, and Mason and its investment, are clear”.⁵⁵⁵ Claimants assert that the large number of investors in the Samsung Group does not render it indeterminate as such shareholders are indeed determinate in number and identifiable.⁵⁵⁶

3. U.S. submission

368. The United States submits that the “relating to” requirement of Article 11.1(1) of the FTA requires a “‘legally significant connection’ between the measure and the investor or its investment”.⁵⁵⁷ Otherwise, the United States relies on the tribunal in Methanex to contend that the threshold would be so low as to include an indeterminate number of domestic measures.⁵⁵⁸ Furthermore, relying on several cases, the United States submits that determining whether a measure bears a legally significant connection depends on the facts of each case and requires a more direct connection than merely a negative impact on a claimant.⁵⁵⁹

⁵⁵⁴ Claimants’ PHB, ¶ 131, relying on Apotex Holdings Inc. and Apotex Inc. v. United States of America, ICSID Case No. ARB(AF)/12/1, Award, August 25, 2014 [RLA-147], ¶ 6.24; Reply, ¶ 133, citing Methanex v. US [RLA-92], ¶ 137. ↩

⁵⁵⁵ Amended Statement of Claim, ¶ 123; Claimants’ PHB, ¶ 131. ↩

⁵⁵⁶ Rejoinder on Jurisdiction, ¶ 49. ↩

⁵⁵⁷ U.S. Submission, ¶ 6, citing Methanex v. US [RLA-92], ¶ 147; see also Bayview Irrigation District, et al. v. United Mexican States, NAFTA/ICSID Case No. ARB(AF)/05/1, Award, 9 June 2007, ¶ 101; William Ralph Clayton & Bilcon of Delaware Inc. et al. v. Government of Canada, NAFTA/UNCITRAL, PCA Case No. 2009-04, Award, 17 March 2015, ¶ 240. ↩

⁵⁵⁸ U.S. Submission, ¶ 6, relying on Methanex v. US [RLA-92], ¶ 137. See also Resolute Forest Products Inc. v. Government of Canada, PCA Case No. 2016-13, Decision on Jurisdiction and Admissibility, 30 January 2018, ¶ 242. ↩

⁵⁵⁹ U.S. Submission, ¶¶ 6-7, relying on S.D. Myers, Inc. v. Government of Canada, NAFTA/UNCITRAL, First Partial Award, 13 November 2000, ¶ 234; William Ralph Clayton & Bilcon of Delaware Inc. et al. v. Government of Canada, NAFTA/UNCITRAL, PCA Case No. 2009-04, Award, 17 March 2015, ¶¶ 5, 12, 237, 239, 241; Cargill Inc. v. United Mexican States, NAFTA/ICSID Case No. ARB(AF)/05/2, Award, 18 September 2009, ¶¶ 173, 175. ↩

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4. Tribunal’s analysis

369. At the outset, the Tribunal notes that the general legal standard applying to the “relating to” requirement in Article 11.1(1) of the FTA is not in dispute. The Parties agree that the words “relating to” in Article 11.1(1) of the FTA require a “legally significant connection” between Respondent’s measures and Claimants or their investments.⁵⁶⁰

370. The Parties, however, disagree on the meaning of this requirement. Whereas Respondent submits that a generic, negative impact of a measure is insufficient but there needs to be a “relationship of apparent proximity” or “some specific impact” of the alleged measures on the investor or the investment,⁵⁶¹ Claimants take the view that the FTA does not introduce any additional requirement beyond showing a connection with the investor or investment that is not merely tangential.⁵⁶²

371. The Tribunal notes that it is common ground that the mere negative effect of a measure on an investor or an investment is insufficient to establish a legally significant connection. The Tribunal agrees with the Resolute Forest Products v. Canada tribunal in that “a measure which adversely affected the claimant in a tangential or merely consequential way will not suffice for this purpose”.⁵⁶³ The Parties’ disagreement centers on whether additional requirements need to be fulfilled for a legally significant connection.

372. In the Tribunal’s view, no such additional requirements can be derived from the ordinary meaning of the term “relating to”. In their literal sense, the words “relating to” merely require that from an objective point of view, there is a connection between the measure and the investor or investment that is not merely coincidental. Article 11.1(1) of the FTA does not say that the measure needs to be directed or targeted at the investor or investment.⁵⁶⁴ Neither does it require any intent to cause harm.⁵⁶⁵

⁵⁶⁰ Claimants’ PHB, ¶ 128; Respondent’s PHB, ¶ 4. ↩

⁵⁶¹ Respondent’s PHB, ¶ 7. ↩

⁵⁶² Claimants’ PHB, ¶ 132. ↩

⁵⁶³ Resolute Forest Products Inc. v. Government of Canada, PCA Case No. 2016-13, Decision on Jurisdiction and Admissibility, 30 January 2018 [RLA-167], ¶ 242. ↩

⁵⁶⁴ See also Resolute Forest Products Inc. v. Government of Canada, PCA Case No. 2016-13, Decision on Jurisdiction and Admissibility, 30 January 2018 [RLA-167], ¶ 242. ↩

⁵⁶⁵ See also Cargill, Incorporated v. United Mexican States, ICSID Case No. ARB(AF)/05/2, Judgment of the Ontario Superior Court of Justice – 2010 ONSC 4656 [CLA-214], ¶ 57. ↩

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373. This interpretation also corresponds to the Treaty’s objective and purpose. On the one hand, as it was held by the Methanex tribunal, some meaning must be given to the term “relating to” as “[a] threshold which could be surmounted by an indeterminate class of investors making a claim alleging loss is no threshold at all”.⁵⁶⁶ The Methanex tribunal further noted that while the “possible consequences of human conduct are infinite, especially when comprising acts of governmental agencies”, at some point a “limit is necessarily imposed restricting the consequences for which that conduct is to be held accountable”.⁵⁶⁷ Building on this jurisprudence, the Tribunal determines the purpose of the “relating to” requirement in Article 11.1(1) of the FTA to be a first jurisdictional filter that puts a limit on the vast amount of consequences which State conduct can have on investors or investments and for which investors can hold the host State accountable under the Treaty. In the Tribunal’s view, this is predominantly a factual question that is separate from the legal issue of State attribution.

374. On the other hand, its legal nature as a jurisdictional gateway implies that this test is different from the factual or legal causation requirements that the Treaty sets forth in Article 11.16(1)(a)(ii) and (b)(ii). The Tribunal agrees with the Resolute Forest Products v. Canada tribunal that the “substantive requirements of causation should be analyzed when deciding on the merits”.⁵⁶⁸ Consequently, whether a measure of the host State was the proximate cause of the loss to the investor’s investment is a question that the Tribunal believes should be reserved for the merits. At the jurisdictional stage, it suffices to show that the effect of the measure on the investor or investment was not merely tangential or coincidental.

375. Eventually, as the Methanex tribunal explained and the United States also pointed out in their non-disputing Party submission, whether there is a legally significant connection can only be decided based on the particular facts of each case.⁵⁶⁹

376. For its inquiry into whether the jurisdictional requirement of a legally significant connection is met, the Tribunal agrees with the Resolute Forest Products v. Canada tribunal in that it “should ordinarily accept pro tem the facts as alleged”.⁵⁷⁰ The Tribunal notes that the Parties’ submissions

⁵⁶⁶ Methanex v. US [RLA-92], ¶ 137. ↩

⁵⁶⁷ Methanex v. US [RLA-92], ¶ 138. ↩

⁵⁶⁸ Resolute Forest Products Inc. v. Government of Canada, PCA Case No. 2016-13, Decision on Jurisdiction and Admissibility, 30 January 2018 [RLA-167], ¶ 242. ↩

⁵⁶⁹ Methanex v. US [RLA-92], ¶ 139; U.S. Submission, ¶¶ 6-7. ↩

⁵⁷⁰ Resolute Forest Products Inc. v. Government of Canada, PCA Case No. 2016-13, Decision on Jurisdiction and Admissibility, 30 January 2018 [RLA-167], ¶ 242. ↩

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on the “relating to” requirements are closely linked to the merits of the dispute. Both Claimants and Respondent refer to their substantive arguments as to why Respondent’s conduct did or did not breach the Treaty’s standards of protection in seeking to establish or to rebut a legally significant connection under Article 11.1(1) of the FTA. In the Tribunal’s view, this approach conflates jurisdictional and substantive issues (and is another reason why the bar for a legally significant connection under Article 11.1(1) of the FTA must not be set too high). If the Tribunal were required to engage in a full factual inquiry into Claimants’ allegations and Respondent’s Defenses to ascertain its jurisdiction, this would anticipate the merits of the dispute and the substantive question of whether any Treaty violations occurred. Consequently, the Tribunal is of the view that its jurisdictional review must necessarily be limited to the question whether the facts as alleged by Claimants establish a legally significant connection between Respondent’s contested measures and Claimants’ investment.

377. The Tribunal considers that Claimants have met this threshold in the present case. If one accepts the facts as alleged by Claimants, Respondent interfered with the Merger vote specifically for the purpose of benefitting the Lee Family which came at the expense of other shareholders in SC&T. On Claimants’ account of facts, the approval of the Merger with a Merger Ratio unfair to SC&T shareholders, which would not have occurred but for Respondent’s illicit interference in the NPS’ voting process, extracted billions of dollars of value from SC&T’s shareholders and transferred them to the Lee Family and Cheil’s other shareholders.

378. Assuming that this was the case, Respondent’s measures affected Claimants in more than just a tangential or coincidental way. At the time of the Merger vote, Claimants were minority shareholders in SC&T and co-shareholders with the NPS. The NPS’ vote on the Merger, and Respondent’s alleged interference with its voting process, had a direct impact on Claimants’ investment in SC&T, independent of whether the NPS was required, under its own guidelines or under Korean law, to take the interests of minority shareholders into account when exercising its voting rights (which the Tribunal does not consider decisive in this context).

379. The case might have been different if, say, the Merger vote had incidentally affected the stock prices of other companies listed on the Korean stock exchange but not affiliated with the Samsung Group, and if their shareholders had somehow felt harmed by the Korean government’s actions. In that instance, the required link between the impugned measures and the investors might have been broken. In the present case, however, Claimants’ allegation is that they were directly affected by Respondent’s interference in the Merger vote as minority shareholders in SC&T, as

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a result of which the Tribunal concludes that there is a legally significant connection between Respondent’s measures and Claimants’ investment in SC&T.

380. For this purpose, the Tribunal considers it irrelevant whether Respondent intended to cause harm to foreign shareholders in SC&T, including Claimants, or specifically targeted them. As the Tribunal has already established, neither is necessary to establish a legally significant relationship. Rather, it suffices to state that, on Claimants’ account of facts, Respondent’s preferential treatment of the Lee Family (and other Cheil shareholders) inevitably disadvantaged and directly impacted the SC&T shareholders including Claimants.

381. The Tribunal is further satisfied that there is also a legally significant connection between Respondent’s measures and Claimants’ investment in SEC. According to Claimants, SC&T’s main asset was its stake in SEC. While SEC was not part of the Merger, it also forms part of the Samsung Group and, as alleged by Claimants, its share price was negatively affected by the lack of corporate governance within the Samsung Group exhibited during the Merger approval.⁵⁷¹ Whether this was actually the case is a question for the merits that the Tribunal will return to in the context of legal causation and quantum. At this jurisdictional juncture, it suffices to state that the facts as alleged by Claimants establish a sufficient nexus between Respondent’s measures and Claimants’ investment in SEC that is not merely tangential or coincidental.

382. The Tribunal is not convinced that the class of potential investors making a claim is indeterminate. The shareholders in SC&T and SEC, which are both publicly traded companies, are readily identifiable and, as such, form a determinate group of investors. The only remaining question is whether, in view of the large number of shareholders in the two companies, one considers the class of potential investors as too large and equates this with indeterminate. In principle, the Tribunal agrees with the rule of thumb suggested by Respondent that the larger the purportedly ascertainable class, the more likely it is that there is no legally significant connection. However, in the present case, “shares, stock, and other forms of equity participation in an enterprise” are expressly listed as protected investments in Article 11.28 of the FTA. It is inherent to publicly listed companies that their shares are often traded by a large number of shareholders. In the Tribunal’s view, it would be irreconcilable with the Treaty’s definition of investment and its object and purpose to exclude shareholders of a company from the Treaty’s ambit solely on the basis of their quantity. Consequently, the fact that the class of potential investors presently

⁵⁷¹ Claimants’ PHB, ¶ 190. ↩

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comprises many individual claimants does not suffice to break the line between the impugned measures and the investors.

383. No other conclusion can be drawn from the fact that domestic investors in SC&T and SEC were equally affected by the measures. Article 11.1(1) of the FTA does not require that a measure only relates to foreign investors or investments.

384. For these reasons, the Tribunal dismisses Respondent’s jurisdictional objection that the impugned measures of Respondent do not relate to Claimants or their investment in the sense of Article 11.1(1) of the FTA.

C. Whether the NPS’s conduct is attributable to Respondent

1. Respondent’s position

a) The applicable standard

385. As the Treaty limits its application to measures adopted or maintained by “central, regional, or local governments and authorities” and “non governmental bodies in the exercise of powers delegated by central, regional, or local governments or authorities”,⁵⁷² Respondent argues that the principle of lex specialis applies, and thus that Article 11.1.3 of the FTA provides “the only grounds for attribution of conduct under the Treaty”.⁵⁷³

386. Respondent acknowledges Claimants’ argument that the customary international law principles of attribution, namely Articles 4, 5, and 8 of the ILC Articles, are either incorporated by Article 11.1.3 of the FTA, or “are not otherwise displaced by the terms of the Treaty”.⁵⁷⁴ Respondent argues, however, that the relevant provisions of the ILC Articles on attribution “do not apply where and to the extent that the conditions ... are governed by special rules of international law”.⁵⁷⁵ Respondent submits that Article 11.1.3 is such an example of lex specialis, rendering the attribution provisions of the ILC Articles inapplicable.

⁵⁷² FTA [CLA-23], Art. 11.1.3. ↩

⁵⁷³ Statement of Defense, ¶ 240. ↩

⁵⁷⁴ Statement of Defense, ¶ 240, citing International Law Commission’s Articles on the Responsibility of States for International Wrongful Acts, 2001 [CLA-24], Arts. 4, 5, 8 [hereinafter “ILC Articles”]. ↩

⁵⁷⁵ Statement of Defense, ¶ 241, citing ILC Articles [CLA-24], Art. 55. ↩

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387. Respondent relies upon a number of legal authorities to support its application of lex specialis and rejects Claimants’ attempts to distinguish these authorities as without merit.⁵⁷⁶ Respondent points to the Al Tamimi v. Oman tribunal’s interpretation of Article 10.1.2 of the U.S.-Oman FTA, which set forth rules on attribution, noting that it “held such treaty provision displaced principles of attribution under customary international law”.⁵⁷⁷ Similarly, Respondent refers to UPS v. Canada, noting that the tribunal held that because “Chapter 15 of NAFTA provides for ‘a lex specialis regime in relation to the attribution of acts of monopolies and state enterprises ... the customary international law rules reflected in article 4 of the ILC text do not apply ...”.⁵⁷⁸

388. Respondent contends that the Al Tamimi decision indicates that “ILC Articles 4 and 5[] serve only to provide a ‘useful guide’” in interpreting treaty provisions like Article 11.1.3, and therefore “[c]ontrary to Mason’s argument, ILC Articles 4 and 5 are thus not binding on this Tribunal”.⁵⁷⁹ Respondent also submits “that particular standards of attributability may apply, as lex specialis, in substitute for or supplementation of the general rules of State responsibility”.⁵⁸⁰

389. Respondent also argues that Article 8 of the ILC Articles, which “specifies an additional ground for attribution, namely ‘conduct directed or controlled by a state’”, does not apply, as “[t]he treaty includes no equivalent ground to ILC Article 8 ...”.⁵⁸¹ Respondent again relies upon the Al Tamimi tribunal’s interpretation of Article 10.1.2 of the U.S.-Oman FTA, noting that because Article 10.1.2 did not include a similar provision to Article 8 of the ILC Articles, “whether [Oman] exercised ‘effective control’ over OMCO ... is not relevant to the test for attribution under Article 10.1.2 of the US-Oman FTA”.⁵⁸² Similarly, Respondent contends that because a

⁵⁷⁶ Rejoinder, ¶ 298. ↩

⁵⁷⁷ Statement of Defense, ¶ 242, citing Adel A Hamadi Al Tamimi v. Sultanate of Oman, ICSID Case No. ARB/11/22, Award, 3 November 2015 [RLA-156], ¶ 321, itself citing Agreement between the Government of the United States of America and the government of the Sultanate of Oman on the Establishment of a Free Trade Area, 1 January 2009 [RLA-113], Art. 10.1.2. ↩

⁵⁷⁸ Statement of Defense, ¶ 243, citing United Parcel Service of America, Inc. (UPS) v. Government of Canada, ICSID Case No. UNCT/02/1, Award on the Merits, 24 May 2007 [CLA-18], ¶ 62. ↩

⁵⁷⁹ Statement of Defense, ¶ 245, citing Adel A Hamadi Al Tamimi v. Sultanate of Oman, ICSID Case No. ARB/11/22, Award, 3 November 2015 [RLA-156], ¶ 324. ↩

⁵⁸⁰ Statement of Defense, ¶ 244, citing F-W Oil Interests, Inc. v. Republic of Trinidad & Tobago, ICSID Case No. ARB/01/14, Award, 3 March 2006 [RLA-98], ¶ 206. ↩

⁵⁸¹ Statement of Defense, ¶ 247, citing ILC Articles [CLA-24], Art. 8. ↩

⁵⁸² Statement of Defense, ¶ 248, citing Adel A Hamadi Al Tamimi v. Sultanate of Oman, ICSID Case No. ARB/11/22, Award, 3 November 2015 [RLA-156], ¶ 322. ↩

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provision like Article 8 of the ILC Articles was not included in the Treaty, it is irrelevant to the question of attribution.⁵⁸³

390. As further support to its argument for the inapplicability of Article 8 of the ILC Articles, Respondent points to the travaux préparatoires of the FTA, which it argues “show that the Contracting Parties to the treaty turned their minds to the question of attribution, and specifically contemplated including a provision that reflected ILC Article 8 in earlier iterations of the FTA, but did not”.⁵⁸⁴ Respondent contends that this proves that “the Contracting Parties specifically intended to exclude such conduct from the scope of application of the Treaty”,⁵⁸⁵ and therefore that Article 8 should not be a valid ground for attribution.

391. Respondent also argues that Article 11.22 of the FTA, where the parties integrated “applicable rules of international law” does not negate the principle of lex specialis since Article 55 of the ILC Articles themselves provides that the ILC Articles do not apply where international responsibility is governed by special rules.⁵⁸⁶

392. Finally, Respondent disputes Claimants’ reliance on the U.S. Submission and claims that the United States did not argue that customary international law on attribution applies to the Treaty, let alone that Article 8 of the ILC Articles applies.⁵⁸⁷

b) Whether the conduct of the NPS or its employees is attributable to Respondent under Article 11.1.3(a) of the FTA

393. Respondent submits that the NPS, including CIO Hong and NPS employees, is not a de jure nor a de facto organ of the central government of Korea.⁵⁸⁸

394. Using Article 4 of the ILC Articles as a useful guide, Respondent contends that a relevant feature of determining whether an entity is a de jure organ under the State is to determine whether the

⁵⁸³ Statement of Defense, ¶ 249; Transcript of Hearing on the Merits, Day 1, 21 March 2022, p. 208:18-22 [Respondent’s Opening Submission]. ↩

⁵⁸⁴ Statement of Defense, ¶ 249, comparing Korea’s Initial Draft Agreement of the Korea-US Free Trade Agreement (travaux préparatoires), 19 May 2006 [R-32] with United States’ initial Draft Agreement of the Korea-US Free Trade Agreement (travaux préparatoires), 19 May 2006 [R-33]. ↩

⁵⁸⁵ Statement of Defense, ¶ 249. ↩

⁵⁸⁶ Rejoinder, ¶ 294, citing FTA [CLA-23], Art. 11.22. ↩

⁵⁸⁷ Rejoinder, ¶ 297, referring to U.S. Submission, ¶ 3. ↩

⁵⁸⁸ Statement of Defense, ¶ 253. ↩

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entity has a distinct legal personality.⁵⁸⁹ Respondent submits that an entity can also be considered a de facto organ of a State in exceptional circumstances, such that “the persons, groups or entities act in ‘complete dependence’ on the State, of which they are ultimately merely the instrument”.⁵⁹⁰

395. Respondent maintains the independence of Professor Kim Sung-soo and relies on his statements to support its argument that the NPS should not be considered a de jure State organ under Korean law.⁵⁹¹ Respondent submits that it is important to consider an entity’s legal status under domestic law in order to determine whether it is a governmental organ,⁵⁹² and according to Professor Kim, State organs in Korea are either “explicitly established by the Constitution or by express legislation and subordinate regulations, and cannot be established otherwise”.⁵⁹³

396. Respondent argues that State organs are divided into three categories: “constitutional institutions established directly under the Constitution”, “State organs that are established under the Government Organization Act and other Acts enacted pursuant to Korea’s Constitution”, and “State organs that are specifically established as ‘central administrative agencies’ by other individual statutes for specific administrative purposes”.⁵⁹⁴ Respondent first argues that “because [the NPS] was not established directly under the Korean constitution” it does not fall under the first category of de jure State organs.⁵⁹⁵ Second, Respondent notes that “the NPS is not an institution that is established under the Government Organization Act or under other Acts enacted

⁵⁸⁹ Statement of Defense, ¶ 251, relying on Commentaries on the ILC Articles (2001) [CLA-166], General Commentary to Chapter II (Attribution of Conduct to a State), ¶ 6 at 39. ↩

⁵⁹⁰ Statement of Defense, ¶ 252, citing Case Concerning Application of the Convention on the Prevention and Punishment of the Crime of Genocide (Bosnia and Herzegovina v. Serbia and Montenegro), I.C.J. Judgment, 26 February 2007 [RLA-105], ¶ 392. ↩

⁵⁹¹ Rejoinder, ¶ 242. ↩

⁵⁹² Rejoinder, ¶ 248, relying on Jon de Nul N.V. & Dredging International N. V. v. Arab Republic of Egypt, ICSID Case No ARB/04/13, Award, 6 November 2008 [RLA-112], ¶ 160; see also Rejoinder ¶ 240, relying on James Crawford, State Responsibility: The General Part (Cambridge University Press, 2013) [RLA-124], p. 124 (noting that the category of de facto State organs was created to recognize that “in some legal systems the category of State organs may be determined only by internal law but also by internal practice”); Commentaries on the ILC Articles (2001) [CLA-166], p. 39, Part I, Chapter II, cmt. 6 (“in determining what constitutes an organ of a State for the purposes of responsibility, the internal law and practice of each State are of prime importance. The structure of the State and the functions of its organs are not, in general, governed by international law. It is a matter for each State to decide how its administration is to be structured and which functions are to be assumed by government”). See also Statement of Defense, ¶¶ 251-252. ↩

⁵⁹³ Statement of Defense, ¶ 256, citing Expert Report of Professor Sung-Soo Kim (“First ER SS Kim”) [RER-3], ¶¶ 12-14, 16. ↩

⁵⁹⁴ Statement of Defense, ¶ 257 (internal references omitted). ↩

⁵⁹⁵ Statement of Defense, ¶ 259. ↩

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pursuant to Korea’s Constitution”.⁵⁹⁶ Respondent specifically notes that “Article 38 of the Government Organization Act, which deals with the Ministry of Health and Welfare, does not provide for the establishment of the NPS ...”.⁵⁹⁷ Respondent therefore submits that the NPS is not a part of the second category of de jure State organs. Finally, Respondent contends that the NPS is not a “central administrative agency” established for “specific administrative purposes”. To this point, Respondent recalls the language of the National Pension Act, and notes that while other statutes establishing administrative agencies “expressly identify the source of constitutional authority for each Commission, and expressly note each Commission is established as a ‘central administrative agency’ under the Government Organization Act”, the National Pension Act does not.⁵⁹⁸

397. Further to this purported lack of designation under each category, Respondent maintains that these three categories exhaustively define Korean State organs.⁵⁹⁹ Respondent furthermore defends Professor Kim’s reliance on Korean law and his use of the Korean term guk-ga-gi-gwan to denote a “State organ”, which Respondent argues is used in Korean administrative law.⁶⁰⁰ Relying on Professor Kim’s testimony, Respondent submits that the NPS is an administrative agency, which falls outside the three-part structure of State organs in Korean law.⁶⁰¹

398. Respondent also disputes Claimants’ assertion that the NPS’s designation as a “public institution” under Korean law means that the NPS is “structurally within the formal legal framework of the Korean state”.⁶⁰² Respondent argues that the designation of “public institution” is “for classification purposes only ... and do[es] not have any impact on the status of an institution under Korean law”.⁶⁰³ Respondent further emphasizes that institutions designated as “public

⁵⁹⁶ Statement of Defense, ¶ 260, citing First ER SS Kim [RER-3], ¶¶ 39-40. ↩

⁵⁹⁷ Statement of Defense, ¶ 261, citing First ER SS Kim [RER-3], ¶ 20; Government Organization Act, 12 September 2020 [R-342], Art. 38. ↩

⁵⁹⁸ Statement of Defense, ¶ 262, citing, e.g., Act on the Establishment and Operation of the Korean Financial Services Commission, 17 April 2018 [R-344], Art. 3; Act on the Establishment and Operation of the Korean Communications Commission, 3 February 2015 [R-343] Art. 3(2). See also Transcript of Hearing on the Merits, Day 1, 21 March 2022, p. 215:5-20 [Respondent’s Opening Submission]. ↩

⁵⁹⁹ Rejoinder, ¶ 246. ↩

⁶⁰⁰ Rejoinder, ¶¶ 245-247. ↩

⁶⁰¹ Respondent’s PHB, ¶ 68. ↩

⁶⁰² Statement of Defense, ¶ 263, referring to Amended Statement of Claim, ¶ 137. ↩

⁶⁰³ Statement of Defense, ¶ 263, citing First ER SS Kim [RER-3], ¶¶ 68-70. ↩

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institutions” include a casino business and a TV home shopping network – all of which cannot be construed as part of the Korean government.⁶⁰⁴

399. In further support of its argument that the NPS is not a de jure State organ, Respondent argues that the NPS has a separate legal personality, and “a key characteristic of State organs is that they do not have separate legal personality from the State to which they belong”.⁶⁰⁵ Respondent further rejects Claimants’ rebuttals concerning the authorities upon which Respondent has relied to argue that a finding of separate legal personality is decisive in concluding that an entity is not a State organ.⁶⁰⁶ Accordingly, Respondent contends that the NPS “is established as a corporation with separate legal personality;”⁶⁰⁷ “has a board of directors that decides on significant matters”,⁶⁰⁸ “has the power to acquire, hold and dispose of property in its own name;”⁶⁰⁹ “may sue and be sued in its own name;”⁶¹⁰ and “is a private law entity governed by the provisions of civil law”.⁶¹¹ Noting that the NPS is specifically guided by the principle of profitability, Respondent takes the view that the NPS’s operation and management of the Fund is similar to that of other financial management entities in the private sector.⁶¹²

400. Respondent also submits that Claimants’ assertion that the NPS’s separate legal personality is “primarily for practical reasons” is irrelevant because there is no international legal support for the principle that “an entity should be considered a State organ if its separate legal personality is

⁶⁰⁴ Transcript of Hearing on the Merits, Day 1, 21 March 2022, p. 218:8-12 [Respondent’s Opening Submission]. See also Transcript of Hearing on the Merits, Day 1, 21 March 2022, p. 217:14-25 [Respondent’s Opening Submission]. ↩

⁶⁰⁵ Statement of Defense, ¶¶ 264-265, citing Bayindir Insaat Turizm Ticaret Ve Sanayi A.S. v. Islamic Republic of Pakistan, ICSID Case No. ARB/03/29, Award, 27 August 2009 (“Bayindir v. Pakistan”) [RLA-119], ¶ 119; Gustav F W Hamester GmbH & Co KG v. Republic of Ghana, ICSID Case No. ARB/07/24, Award, 18 June 2010 [RLA-125], ¶¶ 184-85; Kristian Almås and Geir Almås v. The Republic of Poland, UNCITRAL, Award, 27 June 2016 [RLA-161], ¶ 209; EDF (Services) Limited v. Romania, ICSID Case No. ARB/05/13, Award, 8 October 2009 [CLA-103], ¶ 190. ↩

⁶⁰⁶ Rejoinder, ¶¶ 250-251. ↩

⁶⁰⁷ Statement of Defense, ¶ 266, citing National Pension Act, 31 July 2014 [CLA-157], Art. 26. ↩

⁶⁰⁸ Transcript of Hearing on the Merits, Day 1, 21 March 2022, p. 216:18-23 [Respondent’s Opening Submission]. ↩

⁶⁰⁹ Statement of Defense, ¶ 266, citing Korean Civil Act, 1 July 2015 [CLA-53], Art. 34; NPS Articles of Incorporation (15th version], 26 May 2015 [R-118], Art. 1. ↩

⁶¹⁰ Statement of Defense, ¶ 266, citing All Public Information In-One website, “14-1. Status of Lawsuits and Legal Representatives (2nd Quarter of 2020), National Pension Service,” 6 July 2020 [SSK-26]. ↩

⁶¹¹ Statement of Defense, ¶ 266, citing National Pension Act, 31 July 2014 [CLA-157], Art. 48. ↩

⁶¹² Transcript of Hearing on the Merits, Day 1, 21 March 2022, p. 216:10-17 [Respondent’s Opening Submission]. ↩

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for a practical purpose”.⁶¹³ Respondent points to Amto v. Ukraine and Bayindir v. Pakistan to support its argument that “the fact that an institution may have some links to the government does not automatically render meaningless its separate legal personality”.⁶¹⁴

401. Respondent also argues that the Commentary to Chapter II of the ILC Articles, contrary to Claimants' contention, “does not support a finding that the NPS should be deemed a de jure State organ".⁶¹⁵ Respondent submits that while “[t]he Commentary notes that separate legal authority does not preclude attribution where the institution is found to be a de facto State organ acting in 'complete dependence' on the State, [] Mason has made no such showing”.⁶¹⁶

402. Moreover, Respondent addresses Claimants' comparison of the Korea Asset Management Corporation (“KAMCO”), the Korea Deposit Insurance Corporation (“KDIC”), and the Korean Financial Supervisory Service (“FSS”) to the NPS, arguing that the comparison is irrelevant to the question of attribution. Respondent contends that "[t]he only common feature Mason identifies between these entities is their classification as 'fund-management-type quasi-governmental institutions' under the Korean Public Institutions Act", and that this designation is “irrelevant to the question of whether each entity is a State organ under Korean law”.⁶¹⁷

403. Respondent also contends that whether the NPS might “successfully claim sovereign immunity under a different legal order ... is wholly irrelevant" to whether the NPS is a de jure State organ.⁶¹⁸ Respondent specifically presents the conclusion of the tribunal in Dayyani v. Korea, and its reported reliance “on statements made by a KAMCO representative before U.S. courts that KAMCO was a State organ for the purposes of US law ... does not lead to the conclusion that KAMCO, much less the NPS, is a State organ under Treaty Article 11.1.3(a) (or otherwise)".⁶¹⁹ Relying on Professor Kim's testimony, Respondent submits that KAMCO's

⁶¹³ Statement of Defense, ¶ 267, referring to Amended Statement of Claim, ¶ 138. ↩

⁶¹⁴ Statement of Defense, ¶ 267, citing Limited Liability Company Amto v. Ukraine, SCC Arbitration No. 080/2005, Final Award, 26 March 2008 [RLA-109], ¶ 101; Bayindir v. Pakistan [RLA-119], ¶ 119. ↩

⁶¹⁵ Statement of Defense, ¶ 268. ↩

⁶¹⁶ Statement of Defense, ¶ 268. ↩

⁶¹⁷ Statement of Defense, ¶ 270. ↩

⁶¹⁸ Statement of Defense, ¶ 270, citing [Redacted] "Full Details of Iranians' Arbitral Victory over Korea Finally Come Into View," IAReporter, 22 January 2019 [C-108], 3. ↩

⁶¹⁹ Statement of Defense, ¶ 271, citing [Redacted] "Full Details of Iranians' Arbitral Victory over Korea Finally Come Into View," IAReporter, 22 January 2019 [C-108], 3. ↩

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representations of sovereign immunity before US courts are not reasonable in light of Korean administrative law and do not establish KAMCO nor the NPS as State organs.⁶²⁰

404. Addressing Claimants' argument that the NPS is a de facto State organ, Respondent submits that Claimants failed to discharge their burden of proving that Korea “exercises a 'particularly great degree of State control' over the NPS, such that the NPS is in 'complete dependence' on the State".⁶²¹ Relying upon the expert report of Professor Kim, Respondent argues that Claimants' assertions in support of classifying the NPS as a de facto State organ "offer an incomplete and misleading depiction of the role and status of the NPS under Korean law" and do not show that the NPS is completely dependent on Korea.⁶²²

405. Specifically, Respondent asserts that, as a matter of Korean law: “the fact that the NPS's powers ... derive from government legislation ... cannot render it a State organ;" "the fact that the NPS provides some public services does not change its status to a 'central administrative agency' ... nor does it change the fact that it can also act as a private commercial entity ..."; "executive oversite of the fund's operation is very limited and indirect"; and "bribery is a crime committed by people performing tasks of a certain 'public nature' ... and does not by itself impact the legal status of their employer".⁶²³

406. Respondent further submits that the characteristics of the NPS are irreconcilable with Claimants' assertion that the NPS is completely dependent on the State, and that the level of oversight and control which the MHW and executive branch have over the NPS is on a "macro" level rather than "day-to-day” or direct control.⁶²⁴ Respondent further argues that being subject to audits from the National Assembly and the Board of Audit and Inspection does not render an entity a State organ, and moreover, that the source of the NPS' powers, namely from the Constitution and the National Pension Act, does not change its status under Korean law.⁶²⁵

⁶²⁰ Respondent's PHB, ¶ 73. ↩

⁶²¹ Statement of Defense, ¶¶ 252, 272, citing Case Concerning Application of the Convention on the Prevention and Punishment of the Crime of Genocide (Bosnia and Herzegovina v. Serbia and Montenegro), I.C.J. Judgment, 26 February 2007 [RLA-105], ¶ 393; Respondent's PHB, ¶¶ 70-71. ↩

⁶²² Statement of Defense, ¶ 274. ↩

⁶²³ Statement of Defense, ¶ 274, citing First ER SS Kim [RER-3], ¶¶66-70, 56-61, 49-53, 62-64. ↩

⁶²⁴ Rejoinder, ¶¶ 261-263, relying on Second Expert Report of Professor Sung-Soo Kim (“Second ER SS Kim") [RER-5] ¶ 76. See also Respondent's PHB, ¶ 71. ↩

⁶²⁵ Respondent's PHB, ¶ 72; Transcript of Hearing on the Merits, Day 1, 21 March 2022, pp. 74:23-76:2; Day 2, 22 March 2022, pp. 367:11-368:7, 420:3-420:16. ↩

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407. Respondent relies upon a number of legal authorities to support its argument that entities do not become de facto State organs merely because they are in the public sector.⁶²⁶ Because the NPS "cannot ... therefore be said to be 'completely dependent' on the Korean state, nor can it be said that Korea has a 'particularly great degree' of control over its activities”, Respondent concludes that "the NPS's public function and the limited governmental oversite to which it is subject ... are not the 'exceptional circumstances' that are required to classify the NPS as a de facto State organ under international law”.⁶²⁷

c) Whether the conduct of the NPS or its employees is attributable to
Respondent under Article 11.1.3(b) of the FTA

408. Respondent submits that the conduct of the NPS is not attributable to Respondent under Article 11.1.3(b) of the FTA, as it was not performed by a "non-governmental bod[y] in exercise of powers delegated by central, regional, or local governments or authorities”.⁶²⁸

409. In defining the term “powers” in article 11.1.3(b), Respondent points to the travaux préparatoires of the FTA, which state that “powers' refers to any regulatory, administrative, or other governmental powers”.⁶²⁹ Respondent contends that the interpretation of Article 11.1.3(b) may be guided by Article 5 of the ILC Articles, and that to be attributable to the State "the conduct impugned [must] be delegated ‘governmental authority”’, and “purely commercial conduct (acta jure gestionis) cannot be attributed to the state under the Article 5”.⁶³⁰

410. Relying in part on the U.S. Submission, Respondent further submits that for an action to be attributable to the State, the acting entity must have “acted in a sovereign capacity in that

⁶²⁶ Statement of Defense, ¶¶ 275-77, citing Union Fenosa Gas, S.A. v. Arab Republic of Egypt, ICSID Case No. ARB/14/4, Award of the Tribunal, 31 August 2018 [CLA-145], ¶¶ 9.109, 9.99; Kristian Almås and Geir Almås v. The Republic of Poland, UNCITRAL, Award, 27 June 2016 [RLA-161], ¶¶ 212-13; Ulysseas, Inc. v. The Republic of Ecuador, UNCITRAL, Final Award, 12 June 2012 [RLA-134], ¶¶ 134, 154. ↩

⁶²⁷ Statement of Defense, ¶ 278. ↩

⁶²⁸ Statement of Defense, ¶ 279 (emphasis omitted). ↩

⁶²⁹ Statement of Defense, ¶ 280, n. 555, citing 8th Draft Agreement of the Korea-US Free Trade Agreement (travaux préparatoires), 23 March 2007 [R-39], Note 2 to present Art. 11.1.3(b) at 135. ↩

⁶³⁰ Statement of Defense, ¶¶ 281-82, citing ILC Articles [CLA-24], Art. 5; Adel A Hamadi Al Tamimi v. Sultanate of Oman, ICSID Case No. ARB/11/22, Award, 3 November 2015 [RLA-156], ¶ 323. See also Statement of Defense, ¶ 284, citing Jan de Nul N.V. and Dredging International N.V. v. Arab Republic of Egypt, ICSID Case No. ARB/04/13, Award, 6 November 2008 [RLA-112], ¶¶ 166, 168, itself citing Emilio Agustín Maffezini v. Kingdom of Spain, ICSID Case No. ARB/97/7, Award, 13 November 2000 [RLA-85], ¶ 52. ↩

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particular instance".⁶³¹ Respondent claims that such governmental authority “should be contrasted with 'rights and powers which [a State-owned entity] shares with other businesses competing in the relevant market and undertaking commercial activities”’.⁶³²

411. Applying these principles to the NPS, Respondent submits that just “because the function of the NPS is to manage and operate the National Pension Fund in the public interest", it does not follow that "in making investment decisions the NPS was exercising a governmental function".⁶³³ Respondent argues that Claimants focus “unduly on the sources of power granted to the NPS under Korean law ... and sideline[] the necessary inquiry into whether the NPS's consideration and exercise of a shareholder vote” was an exercise of governmental authority.⁶³⁴ Respondent submits that neither the fact that the MHW has delegated power to the NPS nor the conditions upon which that power is delegated render the commercial acts of the NPS governmental powers.⁶³⁵ Respondent also contends that the governmental oversight of the NPS's management of the National Pension Fund is a normal feature of Korean State-owned entities and does not speak to the NPS's governmental status nor powers.⁶³⁶

412. Relying on the decisions in Bayindir and Jan de Nul, Respondent contends that the nature of the NPS's impugned conduct is analogous to the impugned conduct of State-owned entities in these two cases, where the tribunals found that such entities had governmental authority "but did not exercise that authority with respect to the specific conduct at issue”.⁶³⁷

413. Respondent submits that the NPS's conduct “falls squarely within the ambit of jure gestionis”.⁶³⁸ In voting on the merger, Respondent contends, the NPS "acted in the same way as any other sophisticated commercial investor would”. The fact that “the NPS had ‘structural restraints' that

⁶³¹ Statement of Defense, ¶ 283, citing Bayindir v. Pakistan [RLA-119], ¶ 123; Rejoinder, ¶ 276. ↩

⁶³² Rejoinder, ¶ 277, relying on United Parcel Service of America, Inc. (UPS) v. Government of Canada, ICSID Case No. UNCT/02/1, Award on the Merits, 24 May 2007 [CLA-18], ¶ 74; Jan de Nul N. V. and Dredging International N.V. v. Arab Republic of Egypt, ICSID Case No. ARB/04/13, Award, 6 November 2008 [RLA-112], ¶ 170. ↩

⁶³³ Statement of Defense, ¶ 286. ↩

⁶³⁴ Statement of Defense, ¶ 287; Transcript of Hearing on the Merits, Day 1, 21 March 2022, pp. 210:23-211:1 [Respondent's Opening Submission]. ↩

⁶³⁵ Rejoinder, ¶¶ 283-284; Transcript of Hearing on the Merits, Day 1, 21 March 2022, p. 211:12-19 [Respondent's Opening Submission]. ↩

⁶³⁶ Rejoinder, ¶ 287. ↩

⁶³⁷ Rejoinder, ¶ 288. ↩

⁶³⁸ Statement of Defense, ¶ 289. ↩

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provided a framework for consideration of the Merger vote ... does not alter this conclusion".⁶³⁹ Respondent further contends that the “power” at issue in this case is purely commercial⁶⁴⁰ and that the alleged “governmental imprimatur with which the NPS acts", as well as “the status of the NPS as a larger investor in Korean public companies and its alleged 'market-shaping' impact" does not mean that it exercises governmental authority.⁶⁴¹ Respondent concludes that the commercial nature of the NPS's Merger vote is not changed by the fact that the NPS serves a public purpose.⁶⁴²

414. Finally, Respondent points to Korean domestic law to support its argument. Because "the exercise of a shareholder vote is not subject to [the Administrative Litigation Act and the Administrative Appeals Act] ... if the NPS were to be sued in the Korean courts for any matter to do with its voting as a shareholder, it would be sued in Korea's civil courts and not its administrative courts", bolstering the contention that the NPS's vote on the Merger was of a commercial, and not sovereign, nature.⁶⁴³

d) Whether the conduct of the NPS or its employees is attributable to
Respondent under ILC Article 8

415. Even if there are grounds of attribution beyond Article 11.1.3 of the FTA, Respondent argues that Article 8 of ILC Articles does not apply, as "Korea did not 'direct[] or control[]" the NPS conduct impugned in this case”.⁶⁴⁴

416. Respondent submits that in international law, “the standard of proof of 'direction or control' for attribution purposes is very high”, requiring binding instructions to a non-State entity.⁶⁴⁵ Noting prior cases before the ICJ, Respondent submits that "direction or control" requires that "the state had effective control of [the private party conduct]”,⁶⁴⁶ and that the “private actors acted under the State's 'effective control ..., in respect of each operation in which the alleged violations

⁶³⁹ Statement of Defense, ¶ 289. ↩

⁶⁴⁰ Rejoinder, ¶ 281. ↩

⁶⁴¹ Rejoinder, ¶ 282; Statement of Defense, ¶ 290. ↩

⁶⁴² Rejoinder, ¶ 286. ↩

⁶⁴³ Statement of Defense, ¶ 291. ↩

⁶⁴⁴ Statement of Defense, ¶ 292. ↩

⁶⁴⁵ Statement of Defense, ¶ 293; Rejoinder, ¶ 300. ↩

⁶⁴⁶ Statement of Defense, ¶ 293, citing Case Concerning Military and Paramilitary Activities in and against Nicaragua (Nicaragua v. United States of America), I.C.J. Judgment, 27 June 1986 [RLA-72], ¶ 115 (emphasis added by Respondent). ↩

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occurred ...".⁶⁴⁷ Finally, Respondent points to the specific distinction made “between ‘influence' over a private party's conduct and ‘direction or control”’, with “the former insufficient to attribute private action to the State”.⁶⁴⁸ Respondent asserts that “[t]he ICJ's approach has been adopted by investment tribunals".⁶⁴⁹

417. Respondent contends that “there is no evidence ... that Korea issued binding instructions to the NPS or had effective control over its acts”.⁶⁵⁰ Respondent points to the specific actions of Minister Moon, and argues that even if he “specifically ‘instructed' Mr. Hong (and, in turn, any other members of the NPS's Investment Committee) to vote in favor of the Merger, Mason has pleaded no facts capable of showing that a majority of the twelve members of the NPS's Investment Committee ... acted on that instruction".⁶⁵¹

418. With regard to the allegations by Claimants that Minister Moon "ha[d] the Investment Committee, rather than the Special Committee, analyze the merits of the Merger" and "fabricat[ed] a ‘synergy effect' from the merger to influence Investment Committee members to vote in favor of the Merger", Respondent assert that Claimants “cannot prove that NPS employees carried out either task due to binding 'direction or control' over their actions by the MHW”.⁶⁵² Respondent particularly emphasizes that the Investment Committee deliberated on the merger at length and voted according to what they believed to be the NPS's best interests based on the NPS Guidelines.⁶⁵³ Since "[t]he most that could be said on the evidence is that NPS employees were influenced, but not controlled, by MHW officials”,⁶⁵⁴ Respondent submits that

⁶⁴⁷ Statement of Defense, ¶293, citing Case Concerning the Application of the Convention on the Prevention and Punishment of the Crime of Genocide (Bosnia and Herzegovina v. Serbia and Montenegro), I.C.J. Judgment, 26 February 2007 [RLA-105], ¶ 400 (emphasis added by Respondent). ↩

⁶⁴⁸ Statement of Defense, ¶ 293, citing Case Concerning the Application of the Convention on the Prevention and Punishment of the Crime of Genocide (Bosnia and Herzegovina v. Serbia and Montenegro), I.C.J. Judgment, 26 February 2007 [RLA-105], ¶ 412; Rejoinder, ¶¶ 301-302, relying on Tulip Real Estate and Development Netherlands B.V. v. Republic of Turkey, ICSID Case No. ARB/11/28, Award, 10 March 2014 [RLA-225]. ↩

⁶⁴⁹ Statement of Defense, ¶ 293, citing Jan de Nul N.V. and Dredging International N.V. v. Arab Republic of Egypt, ICSID Case No. ARB/04/13, Award, 6 November 2008 [RLA-112], ¶ 173; Gavrilovic and Gavrilovic d.o.o. v. Republic of Croatia, ICSID Case No. ARB/12/39, Award, 26 July 2018 [CLA-31], ¶ 828. ↩

⁶⁵⁰ Statement of Defense, ¶ 294, citing Csaba Kovács, Attribution in International Investment Law (2018) [RLA-171], p. 226 (explaining the relevant test of effective control in regards to attribution). ↩

⁶⁵¹ Statement of Defense, ¶ 294. ↩

⁶⁵² Statement of Defense, ¶ 297. ↩

⁶⁵³ Rejoinder, ¶ 305. ↩

⁶⁵⁴ Statement of Defense, ¶ 297. ↩

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the conduct of the NPS does not reach the level of “effective control” needed to attribute it to Korea.⁶⁵⁵

2. Claimants' position

a) The applicable standard

419. Claimants note that “[t]he language in Article 11.1 of the FTA was introduced by the United States in the course of the treaty negotiations, and is in a number of respects similar to the language adopted in the 2004 US Model BIT”, which does “not include rules of attribution, and thus customary international law rules” govern questions of attribution.⁶⁵⁶ Relying on the observation by the United States that the terms “governments and authorities” equate to “the organs of a Party” further to Article 4 of the ILC Articles, Claimants contend that Article 11.1 of the FTA is thus intended to be consistent with the principles of attribution in customary international law and does not derogate or displace them.⁶⁵⁷

420. Claimants reject Respondent's use and interpretation of the lex specialis principle. Claimants rely on Article 11.22 of the FTA, where the Contracting Parties integrated applicable rules of international law into the FTA to support this view.⁶⁵⁸ Moreover, Claimants contend that the lex specialis principle only applies to exclude rules of customary international law to the extent that the Contracting Parties discernably intended to displace them or when there is some actual inconsistency.⁶⁵⁹ Claimants reject Respondent's assertion that the Contracting Parties contemplated including a provision reflecting Article 8 of the ILC Articles and decided not to, thereby specifically excluding such conduct.⁶⁶⁰ Rather, Claimants argue that the Contracting Parties merely proposed slightly different formulations.⁶⁶¹

⁶⁵⁵ Statement of Defense, ¶ 297. ↩

⁶⁵⁶ Amended Statement of Claim, ¶ 126, citing 2004 United States Model BIT [CLA-23]. ↩

⁶⁵⁷ Amended Statement of Claim, ¶ 127, citing Elliott v. Republic of Korea, PCA Case No. 2018-51, Submission of the United States of America pursuant to United States-Korea Free Trade Agreement, Article 11.20.4, February 7, 2020 [CLA-105], ¶¶ 3-6. ↩

⁶⁵⁸ Reply, ¶ 143, referring to FTA [CLA-23], Art. 11.22(1). ↩

⁶⁵⁹ Reply, ¶ 143, relying on Commentaries on the ILC Articles [CLA-166], Art. 55, cmt. 4; Rejoinder on Jurisdiction, ¶ 82, relying on Jürgen Kurtz, “The Paradoxidical Treatment of the ILC Articles on State Responsibility in Investor-State Arbitration,” 25 ICSID Review 200 (Spring 2010) [CLA-219], p. 209. ↩

⁶⁶⁰ Reply, ¶ 146; Transcript of Hearing on the Merits, Day 1, 21 March 2022, p. 68:15-23 [Claimants' Opening Submission]. ↩

⁶⁶¹ Reply, ¶ 146. ↩

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421. Lastly, Claimants submit that the authorities upon which Respondent relies are of limited assistance in this case. Claimants contend that the tribunal's observations in Al-Tamimi were ‘plainly wrong', strictly obiter, and have been criticized by commentators.⁶⁶² Claimants further contend that the decision in UPS concerned a different question and the decision in F-W Oil actually supports Claimants' views.⁶⁶³

b) Whether the conduct of the NPS or its employees is attributable to
Respondent under Article 11.1.3(a) of the FTA

422. Claimants assert that the conduct of President Park and her subordinates is attributable to Respondent, as she was “head of the executive branch of the central government of Korea”, a position caught by Article 11.1(3)(a) of the FTA, and a state organ within the meaning of Article 4 of the ILC Articles.⁶⁶⁴ Accordingly, Claimants contend that the actions of President Park and her subordinates in relation to the merger “are measures for which Korea is internationally responsible under the FTA”.⁶⁶⁵

423. Claimants also submit that the conduct of Minister Moon, the MHW, and its officials is attributable to Respondent. Claimants assert that “[t]he MHW is an executive ministry established under the control of the President, pursuant to the Government Organization Act” and its conduct is therefore attributable to Respondent.⁶⁶⁶ According to Claimants, Minister Moon and other Ministry officials “form part of the executive branch of the central government of Korea, pursuant to Article 11.1(3)(a) of the FTA and a state organ within the meaning of Article 4 of the ILC Articles”, thus rendering Respondent internationally responsible for their actions.⁶⁶⁷

⁶⁶² Reply, ¶ 147, referring to Adel A Hamadi Al Tamimi v. Sultanate of Oman, ICSID Case No. ARB/11/33, Award, November 3, 2015 [RLA-156]; Csaba Kovács, Attribution in International Investment Law (2018) [RLA-171], p. 68; Rejoinder on Jurisdiction, ¶ 83. ↩

⁶⁶³ Reply, ¶ 147, referring to United Parcel Service of America, Inc. (UPS) v. Government of Canada, ICSID Case No. UNCT/02/1, Award on the Merits and Separate Statement of Dean Ronald A. Cass, May 24, 2007 [CLA-18], ¶¶ 58-62; F-W Oil Interests, Inc. v. Republic of Trinidad & Tobago, ICSID Case No. ARB/01/14, Award, March 3, 2006 [RLA-98], “The tribunal observed that while a treaty provision on attribution could operate as a lex specialis, it could also not have that effect, and 'the applicable secondary rules of state responsibility remain unaffected.' In that regard, the tribunal noted that what the two Governments chose to lay down expressly in Article XV(2) of the BIT is to all intents and purposes indistinguishable from the position under general international law, as exemplified by Article 5 of the ILC's draft Articles.” ↩

⁶⁶⁴ Amended Statement of Claim, ¶ 128. ↩

⁶⁶⁵ Amended Statement of Claim, ¶ 129; Claimants' PHB, ¶ 20. ↩

⁶⁶⁶ Amended Statement of Claim, ¶ 130, citing Korean Government Organization Act, 19 November 2014 [CLA-155], Art. 38; Claimants' PHB, ¶ 20. ↩

⁶⁶⁷ Amended Statement of Claim, ¶ 131, referring to ILC Articles [CLA-24], Art. 4. ↩

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In this regard, Claimants emphasize that Minister Moon and his subordinates assumed "a very direct and prominent role in the unlawful scheme.⁶⁶⁸ Claimants add that the Korea's international responsibility was engaged when Minister Moon elected to involve himself in the NPS's activities.⁶⁶⁹

424. For Claimants, “[t]he NPS forms part of the executive branch of the central government of Korea ... pursuant to Article 11.1(3)(a) of the FTA, and is a state organ within the meaning of Article 4 of the ILC Articles”.⁶⁷⁰ Therefore, Claimants consider that its actions, and the actions of CIO Hong and other NPS officials are attributable to Respondent.⁶⁷¹ Claimants note that while the Tribunal may “put to one side the objection raised by Korea about the scope of its responsibility for the NPS, and base its finding of Korea's responsibility and Mason's loss on the conduct of President Park and Minister Moon”,⁶⁷² Claimants still contend that “the NPS is indeed part of the central government of Korea and a State organ under customary international law”.⁶⁷³

425. In support of their contention that the NPS is a state organ, Claimants argue as follows. First, while "Korean law does not specify which entities are 'state organs”’, Claimants point to the Commentaries to the ILC Articles, which state that “the reference to a State organ in article 4 is intended in the most general sense”.⁶⁷⁴ Claimants assert that “Article 4 is ultimately concerned with the reality of any given situation alleged to involve internationally wrongful State conduct" rather than the formalistic definition.⁶⁷⁵ Along these lines, Claimants contend that “the position of internal law as to whether or not an entity is an ‘organ' has only very limited relevance".⁶⁷⁶ Claimants contend that domestic law is only relevant in “two stages”: the first stage concerns whether domestic law characterizes particular entities as "State organ" and the second stage

⁶⁶⁸ Transcript of Hearing on the Merits, Day 1, 21 March 2022, p. 70:11-14 [Claimants' Opening Submission]. ↩

⁶⁶⁹ Transcript of Hearing on the Merits, Day 1, 21 March 2022, pp. 70:19-71:6 [Claimants' Opening Submission]. ↩

⁶⁷⁰ Amended Statement of Claim, ¶ 134, referring to ILC Articles [CLA-24], Art. 4; the FTA [CLA-23], Art. 11.1(3)(a). See also Claimants' PHB, ¶ 21. ↩

⁶⁷¹ Amended Statement of Claim, ¶ 134, referring to ILC Articles [CLA-24], Art. 4; the FTA [CLA-23], Art. 11.1(3)(a). ↩

⁶⁷² Reply, ¶ 138. ↩

⁶⁷³ Reply, ¶ 139; Transcript of Hearing on the Merits, Day 1, 21 March 2022, p. 71:8-22 [Claimants' Opening Submission]. ↩

⁶⁷⁴ Amended Statement of Claim, ¶ 134, citing Commentaries on the ILC Articles [CLA-166], Art. 4, cmt. 6. ↩

⁶⁷⁵ Reply, ¶ 148, citing Csaba Kovács, ATTRIBUTION IN INTERNATIONAL INVESTMENT LAW (2018) [RLA-171], p. 2. ↩

⁶⁷⁶ Reply, ¶ 150. ↩

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concerns "whether the structural and functional legal characteristics of an entity qualify it as a State organ".⁶⁷⁷

426. Claimants question the veracity of Professor Kim Sung-soo's conclusions in his expert report regarding the importance of internal Korean law to the NPS's status as a State organ.⁶⁷⁸ Claimants assert that "Korean law does “not classify, exhaustively or at all, which entities have the status of 'organs”’, and thus it is more relevant to consider "the NPS's structural and functional characteristics under Korean law” or the above-noted second stage.⁶⁷⁹ Claimants contend that there is in fact a huge diversity of administrative agencies within the Korean State apparatus.⁶⁸⁰ Claimants thus argue that Professor Kim's finding that “Korean law explicitly defines what entities are considered ‘organs' for the purposes of international law” actually “critically misstates the position"⁶⁸¹ and that his reference to the concept of “guk-ga-gi-gwan" has no authoritative support.⁶⁸² Moreover, Claimants attack the independence of Professor Kim over his longstanding ties to the Korean government.⁶⁸³

427. As to the relevance of internal law in the "second stage", Claimants contend that "it is clear from a structural perspective that the NPS is a part of the central government within the meaning of Article 11.3(a) of the FTA”.⁶⁸⁴ In particular, Claimants note that: “[t]he NPS's purpose, functions and powers derive exclusively from the National Pension Act, from other legislation that entrusts matters to the NPS, and from delegations by the Minister of Health and Welfare in accordance with the National Pension Act";⁶⁸⁵ the chief executive of the NPS serves at the will of the President of Korea, and “sits on the NPS board, alongside directors appointed by the Minister of Health and Welfare, and a government official in charge of National Pension affairs at the

⁶⁷⁷ Rejoinder on Jurisdiction, ¶ 57. ↩

⁶⁷⁸ Reply, ¶¶ 153-57 (noting "Prof. Kim's patent lack of independence from the government of Korea"). ↩

⁶⁷⁹ Reply, ¶ 154. ↩

⁶⁸⁰ Rejoinder on Jurisdiction, ¶ 59, referring to Second ER SS Kim, ¶ 18. ↩

⁶⁸¹ Reply, ¶ 154, citing First ER SS Kim [RER-3], ¶ 11. ↩

⁶⁸² Rejoinder on Jurisdiction, ¶ 58, referring to Second ER SS Kim, ¶ 12. ↩

⁶⁸³ Reply, ¶153. ↩

⁶⁸⁴ Reply, ¶ 158, citing Commentaries on the ILC Articles [CLA-166], Art. 4, cmt. 11. See also Rejoinder on Jurisdiction, ¶ 61. See also Claimants' PHB, ¶ 22. ↩

⁶⁸⁵ Reply, ¶ 159, citing Korean National Pension Act [CLA-157], Arts. 24, 25, 102; Enforcement Decree of the National Pension Act, 16 April 2015 [CLA-150], Art. 76. ↩

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Ministry”;⁶⁸⁶ the MHW “approves the appointment of the NPS CIO”;⁶⁸⁷ “CIO Hong and other officials of the NPS are considered 'public officials' or ‘government employees' under the Korean Criminal Act";⁶⁸⁸ "[t]he Minister of Health and Welfare is required to approve any amendments to the NPS's articles of incorporation which set forth internal regulations or guidelines", can “order changes to be made", and "is required to approve the NPS's business operation plan and budget”;⁶⁸⁹ “[t]he functions performed by the NPS are fundamentally state functions, as recognized in the Korean constitution, and the Government Organization Act”;⁶⁹⁰ "[t]he NPS has no independent commercial purpose or functions” and “no independent or commercial source of revenue”;⁶⁹¹ and like other State organs, “the NPS is subject to Korean administrative law, including the Petition Act, the Administrative Appeals Act, and the Administrative Litigation Act".⁶⁹²

428. Claimants also submit that even though the NPS does retain an element of legal personality, this "does not detract from the attribution of the NPS's conduct to Korea".⁶⁹³ Claimants assert that “international law does not permit a State to escape its international responsibilities by a mere process of internal subdivision" and that States are held responsible for their organs' conduct regardless of whether they have separate legal personality recognized by internal law.⁶⁹⁴ Claimants point to the decision Muhammet Çap, as well as in M.C.I. Power v. Ecuador as situations where a company that was “established pursuant to its own law, but had separate

⁶⁸⁶ Amended Statement of Claim, ¶ 137, citing Korean National Pension Act [CLA-157], Arts. 30(1), 30(2). ↩

⁶⁸⁷ Amended Statement of Claim, ¶ 137, citing Korean National Pension Act [CLA-157], Art. 31(6); NPS Organization Regulations, 19 May 2015 [CLA-159], Art. 6(2). ↩

⁶⁸⁸ Amended Statement of Claim, ¶ 137, citing Korean National Pension Act [CLA-157], Art. 40; Korean Criminal Act, 29 May 2016 [CLA-154], Arts. 129-132. ↩

⁶⁸⁹ Amended Statement of Claim, ¶ 137, citing Korean National Pension Act [CLA-157], Arts.28(2), 41(1), 41(3); Enforcement Decree of the National Pension Act, 16 April 2015 [CLA-150], Art. 34. ↩

⁶⁹⁰ Amended Statement of Claim, ¶ 137, citing Constitution of the Republic of Korea, 25 February 1988; Korean Government Organization Act, 19 November 2014 [CLA-155], Art. 38. ↩

⁶⁹¹ Amended Statement of Claim, ¶ 137, citing Korean National Pension Act [CLA-157], Art. 88(2). ↩

⁶⁹² Amended Statement of Claim, ¶ 137, citing Korean Petition Act, 31 March 2015 [CLA-158]; Korean Administrative Appeals Act, 28 May 2014 [CLA-152]; Korean Administrative Litigation Act, 19 November 2014 [CLA-153]. ↩

⁶⁹³ Amended Statement of Claim, ¶¶138-39. See also Reply, ¶ 162. ↩

⁶⁹⁴ Amended Statement of Claim, ¶ 139; Reply, ¶ 162, citing Commentaries on the ILC Articles [CLA-166], Chapter II, cmt. 7. See also Sergei Paushok, CJSC Golden East Company and CJSC Vostokneftegaz Company v. Government of Mongolia, Award on Jurisdiction and Liability, 28 April 2011, ¶ 583 (“[t]he simple fact that an institution has separate legal status does not allow one to conclude automatically that that institution is not an organ of the State"); Rejoinder on Jurisdiction, relying on Csaba Kovács, Attribution in International Investment Law [RLA-171], p. 84. ↩

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personality and was ‘legally independent of the State”’ was still considered an organ of the State pursuant to international law.⁶⁹⁵ Claimants also argue that the cases cited by Respondent do not actually support the proposition that separate legal personality is dispositive for attribution to the State, as “[i]n each instance, a range of other circumstances necessitated the cursory analyses and conclusions that the relevant entity was not a State organ”.⁶⁹⁶ Even if the NPS has separate legal status, Claimants contend that its actions are still attributable to Respondent.

429. Claimants also contend that the three features of the NPS upon which Respondent relies to argue for the existence of separate personality “do not meaningfully advance the requisite structural or functional analysis” since such an analysis must focus on the entity as a whole, which is in this case, an entity that performs a fundamentally State function.⁶⁹⁷ In fact, Claimants argue that Respondent ignores the functional analysis altogether.⁶⁹⁸

430. Claimants point to the NPS's designation in Korean law as gigeumgwanlihyeong junjeongbugigwan, or “fund-management-type quasi-governmental institution”.⁶⁹⁹ Claimants note that a similarly classified governmental authority, KAMCO, was the subject of a recent investment dispute, in which the tribunal found that KAMCO is a State organ under Article 4 of the ILC Articles and its actions are attributable to South Korea.⁷⁰⁰

⁶⁹⁵ Reply, ¶ 164, referring to M.C.I. Power Group, L.C. and New Turbine, Inc. v. Republic of Ecuador, ICSID Case No. ARB/03/6, Award, 31 July 2007 [CLA-179], ¶¶ 222, 224-25; Rejoinder on Jurisdiction, ¶ 65, relying on Muhammet Çap & Sehil Insaat Endustri ve Ticaret Ltd. Sti. v. Turkmenistan, ICSID Case No. ARB/12/6, Award, May 4, 2021 [RLA-241], ¶ 246. ↩

⁶⁹⁶ Reply, ¶ 165, referring to Bayindir v. Pakistan [RLA-119] (noting that “the cursory analysis of the Bayindir tribunal has been the subject of criticism” and that despite the tribunal's conclusion on the importance of separate legal personality, “the impugned conduct was nevertheless found to be attributable to the state”); EDF v. Romania, ICSID Case No. ARB/05/13, Award, 8 October 2009 [CLA-103] (again criticizing the cursory analysis of the tribunal, and noting the impugned conduct was nevertheless found attributable ); Gustav F W Hamester GmbH & Co KG v. Republic of Ghana, ICSID Case No. ARB/07/24, Award, 18 June 2010 [RLA-125] (arguing “the tribunal considered a range of factors ... before concluding that it did not meet the criteria of a State organ”); Limited Liability Company Amto v. Ukraine, SCC Arbitration No. 080/2005, Final Award, 26 March 2008 [RLA-109] (noting the tribunal considered “the legislation under which [Energostoal] a State-enterprise was created”, its charter ... and its participation in a regulated energy market before reaching its conclusion” and that “its conduct was nevertheless attributable under the equivalent of ILC Article 5”). ↩

⁶⁹⁷ Rejoinder on Jurisdiction, ¶¶ 67-69. ↩

⁶⁹⁸ Rejoinder on Jurisdiction, ¶ 69. ↩

⁶⁹⁹ Amended Statement of Claim, ¶ 141, citing Act on the Management of Public Institutions [CLA-20], Art. 5(1)(iv); Designations of Public Institutions for 2018, Ministry of Economy and Finance Press Release, 31 January 2018 [C-102]. ↩

⁷⁰⁰ Amended Statement of Claim, ¶ 141, citing Republic of Korea v. Dayyani & Ors, [2019] EWHC 3580 (Comm), December 20, 2019 [CLA-135], ¶ 93. ↩

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431. Claimants argue that the NPS and KAMCO and share all of the same features critical to the question of attribution.⁷⁰¹ Specifically, Claimants state that “[b]oth the NPS and KAMCO have separate juristic personality",⁷⁰² are “public institutions known as fund-management-type quasi-governmental institutions”,⁷⁰³ “the NPS is definitively funded by the national treasury” while “KAMCO is provided with capital under law”.⁷⁰⁴ Claimants also notes that “[b]oth have the same status under Korean law”, “[b]oth are empowered by law to acquire and dispose of various assets and investments”, and “[b]oth have executives and a Board which are principally responsible for day-to-day decision-making within the scope of their delegated authority and subject to control and oversight by government committees”.⁷⁰⁵ Claimants submit that Respondent provides no meaningful response with respect to why these entities should be distinguished and draws attention to Respondent's refusal to let the Tribunal see the Dayyani award, which found KAMCO to be a State organ.⁷⁰⁶

432. Claimants submit that both entities fail to qualify as State organs using Professor Kim's arbitrary and unsupported definition”.⁷⁰⁷ Claimants also assert that Professor Kim's theory does not address the test that the Tribunal must adopt under the Treaty and ILC Articles 4 and 5.⁷⁰⁸ Moreover, Claimants contend that Professor Kim misunderstood and misrepresented the legislation and regulations of the NPS and put forward a narrow and rigid theory inconsistent with his previous writings, the findings of the Dayanni tribunal in relation to KAMCO, and KAMCO's own representations concerning its state organ status.⁷⁰⁹

433. Claimants also contend that KDIC shares the above-noted fundamental legal characteristics.⁷¹⁰ Claimants note that KDIC “ha[s] legal personality, and fall[s] within the small sub-group of fund-

⁷⁰¹ Reply, ¶ 168; Claimants' PHB, ¶¶ 24-25. ↩

⁷⁰² Reply, ¶ 168, citing Act on the Efficient Disposal of Non-Performing Assets of Financial Companies and the Establishment of Korea Asset Management Corporation, 21 March 2012 [CLA-147], Art. 37(1). ↩

⁷⁰³ Reply, ¶ 168, citing Designations of Public Institutions for 2018, Ministry of Economy and Finance Press Release, 31 January 2018 [C-102]. ↩

⁷⁰⁴ Reply, ¶ 168, comparing Korean National Pension Act [CLA-157], Art. 43 with Act on the Efficient Disposal of Non-Performing Assets of Financial Companies and the Establishment of Korea Asset Management Corporation, 21 March 2012 [CLA-147], Art. 9(1)(3). ↩

⁷⁰⁵ Claimants' PHB, ¶ 24. ↩

⁷⁰⁶ Claimants' PHB, ¶ 25. ↩

⁷⁰⁷ Reply, ¶ 168. ↩

⁷⁰⁸ Claimants' PHB, ¶ 26. ↩

⁷⁰⁹ Claimants' PHB, ¶¶ 27-28. ↩

⁷¹⁰ Reply, ¶ 171. ↩

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management-type governmental institutions”.⁷¹¹ Furthermore, in addition to KAMCO and KDIC, Claimants submit that in Peninsula Asset Mgmt. v. Hankook Tire Co., the Korean government intervened and claimed that “the Korean Financial Supervisory Service, then a 'public institution' like the NPS, with separate legal personality, the power to acquire, hold, and dispose of property in its own name, to sue and be sued in its own name, and governed by civil law, was a ‘State organ.”⁷¹² Claimants contend that the “so-called ‘significant”’ structural and functional differences between these entities which Respondent submits are "immaterial to the analysis and premised on mischaracterizations”.⁷¹³

434. Claimants note that Respondent has "consistently argued, before the judicial organs of the United States that 'public organizations' that fit into the category of ‘fund-management-type quasi-governmental institutions,' are Korean state organs as a matter of Korean law, and as such, are entitled to foreign state immunity before US courts”.⁷¹⁴

435. Claimants contend that “Korea's assertion of an entitlement to immunity, and the finding of immunity, have a critical impact on the development of the customary international legal position”.⁷¹⁵ Claimants assert that while “the law of State immunity and responsibility serve different functions ... they both 'concur as to the operation to bridge the conduct of State organs and instrumentalities to the sovereign.'”⁷¹⁶ Relying on the work of Carlos de Stefano, Claimants argue that Respondent cannot benefit from the inconsistency in its conduct on the international plane by escaping responsibility by claiming non-state action while simultaneously maintaining sovereign immunity.⁷¹⁷

⁷¹¹ Reply, ¶ 171, citing Designations of Public Institutions for 2018, Ministry of Economy and Finance Press Release, 31 January 2018 [C-102]. ↩

⁷¹² Reply, ¶ 172, citing Peninsula Asset Mgmt. (Cayman), Ltd. v. Hankook Tire Co., Case No. 5:04 CV 1153, February 1, 2008 [CLA-180]. ↩

⁷¹³ Rejoinder on Jurisdiction, ¶ 71. ↩

⁷¹⁴ Amended Statement of Claim, ¶ 142, citing Murphy v. Korea Asset Management Corporation, 421 F. Supp.2d 627 (S.D.N.Y 19 October 2005) [CLA-121]; Murphy v. Korea Asset Management Corporation, Brief of Defendant-Appellee Korea Asset Management Corporation (2d Cir. 7 April 2006) [CLA-121]; Filler v. Hanvit Bank, 247 F. Supp.2d 425 (S.D.N.Y. 2003) [CLA-110], aff'd Filler v. Hanvit Bank, 378 F.3d 213 (2d Cir. 2004) [CLA-111]. ↩

⁷¹⁵ Amended Statement of Claim, ¶ 143, citing Jurisdictional Immunities of the State (Germany v. Italy), I.C.J. Judgment, 3 February 2012 [CLA-116], ¶ 55. ↩

⁷¹⁶ Amended Statement of Claim, ¶ 143, citing Carlos De Stefano, Attribution in International Law and Arbitration (Oxford Univ. Press, 2020) [CLA-163], p. 25 (citation omitted). ↩

⁷¹⁷ Amended Statement of Claim, ¶ 145, relying on Carlos De Stefano, Attribution in International Law and Arbitration (Oxford Univ. Press, 2020) [CLA-163], p. 25, citing Gordan A. Christenson, The Doctrine of ↩

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436. Concerning the possibility of classifying the NPS as a de facto state organ, Claimants contend that it is “completely and financially dependent on the Korean State".⁷¹⁸ Claimants point to KAMCO's arguments before the judicial organs of the United States that KAMCO, like the NPS "was created pursuant to a national statute, the KAMCO Act, which specifically determined its mission, regulatory functions, public corporate structure, and level of government supervision”; "is subject to the Framework Act on the Management of Government Affiliated Institutions"; "is subject to audit by the Board of Audit and Inspection ... and also subject to annual inspection and special investigation by the National Assembly”; “is exempt from paying certain taxes, and can be granted special tax relief for its own welfare"; and has "officers who “are 'deemed public officials' and are subject to prosecution under certain provisions of the Korean Criminal Act that apply only to public officials".⁷¹⁹

437. Along these lines, Claimants point to the ICJ's observation that “it is appropriate to look beyond legal status alone, in order to grasp the reality of the relationship between the person taking action, and the State to which he is so closely attached” to argue that “even assuming the NPS is not a 'State organ' as a matter of law, the NPS clearly satisfies the test of an organ de facto".⁷²⁰ Claimants assert that Respondent has no produced any evidence of the practical relationship between the NPS and the MHW, particularly where the NPS made its own decisions contrary to the position of the MHW.⁷²¹

438. Claimants also contend that these findings of the NPS's dependence on the State are “in no way disturbed by the authorities selectively put forward by Respondent, which are readily distinguishable on the facts”.⁷²²

Attribution in State Responsibility in INTERNATIONAL LAW OF STATE RESPONSIBILITY FOR INJURIES TO ALIENS (Richard B. Lillich ed., Univ. of Virginia 1983), p. 330.

⁷¹⁸ Rejoinder on Jurisdiction, ¶ 72. ↩

⁷¹⁹ Reply, ¶ 170, comparing Murphy v. Korea Asset Management Corporation, Brief of Defendant-Appellee Korea Asset Management Corporation (2d Cir. 7 April 2006) [CLA-121], p. 41 with Korean National Pension Act [CLA-157], Arts. 40, 107(2), Act on the Management of Public Institutions [CLA-20], Art. 2, and Clarification on Corporate Tax Exemption, NPS Press Release (26 May 2020) [C-196]. ↩

⁷²⁰ Reply, ¶ 175, citing Case Concerning Application of the Convention on the Prevention and Punishment of the Crime of Genocide (Bosnia and Herzegovina v. Serbia and Montenegro), I.C.J. Judgment, 26 February 2007 [RLA-105], ¶ 392. ↩

⁷²¹ Rejoinder on Jurisdiction, ¶ 74. ↩

⁷²² Reply, ¶ 176, referring to Kristian Almås and Geir Almås v. The Republic of Poland, UNCITRAL, Award, 27 June 2016 (arguing that "the NPS bears none of the[] characteristics" of the impugned entity in this dispute); Ulysseas, Inc. v. The Republic of Ecuador, UNCITRAL, Final Award, 20 June 2012 (noting ↩

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439. Claimants conclude that the level of operational governmental control over the NPS includes structural manifestations of control, substantive controls, and financial dependence, all rendering it a de facto State organ.⁷²³

c) Whether the conduct of the NPS or its employees is attributable to
Respondent under Article 11.1.3(b) of the FTA

440. In the alternative, Claimants submit that, even if “the NPS is not a governmental body under Article 11.1(3)(a) of the FTA, the conduct of the NPS and its officials remains attributable to Korea pursuant to Article 11.1(3)(b) of the FTA”.⁷²⁴

441. Claimants argue that Article 11.1(3)(b) of the FTA stipulates two conditions for a finding that conduct of a non-governmental body is attributable to the State: the powers have been delegated by the state to the relevant non-governmental body and the conduct complained of arises out of those powers.⁷²⁵ Claimants reject Respondent's argument to introduce a further requirement that the powers being exercised must be governmental in nature.⁷²⁶ Claimants argue nonetheless that the NPS exercised delegated governmental powers because the analysis concerns the “nature of the delegation and the nature of the power delegated by the State, rather than the nature of the conduct pursuant to that power".⁷²⁷

442. Claimants assert that the Minister of Health and Welfare, under the National Pension Act, delegated "[b]oth the general power to manage and operate the fund, and the specific power in relation to dealing with equity securities” to the NPS.⁷²⁸ Claimants argue that "[t]he egregious conduct of the officials of the NPS, including CIO Hong, which ultimately culminated in a vote in favor of the merger, were clearly acts in the exercise of the NPS's powers to manage and operate the National Pension Fund".⁷²⁹

tribunal's cursory analysis at the final stage makes no reference to a claim that the entities are de facto State organs, and does not consider the applicable test for such organs").

⁷²³ Rejoinder on Jurisdiction, ¶ 75. ↩

⁷²⁴ Amended Statement of Claim, ¶ 147. ↩

⁷²⁵ Amended Statement of Claim, ¶ 147, citing the FTA [CLA-23], art. 11.1(3)(b). ↩

⁷²⁶ Rejoinder on Jurisdiction, ¶ 76. ↩

⁷²⁷ Rejoinder on Jurisdiction, ¶ 77 (emphasis in original). ↩

⁷²⁸ Amended Statement of Claim, ¶ 150, citing Enforcement Decree of the National Pension Act, 16 April 2015 [CLA-150], Art. 76 (trans 2.9). ↩

⁷²⁹ Amended Statement of Claim, ¶ 151. ↩

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443. Claimants also contend that under Article 5 of ILC Articles, the conduct of the NPS and its officials would also be attributable to Korea as “the powers exercised by the NPS and its officials were conferred by way of legislation and delegated by way of an enforcement decree”.⁷³⁰ Claimants point to the specific language of Article 5 of ILC Articles, which states “of particular importance will be not just the content of the powers, but the way they were conferred on an entity, the purposes for which they are to be exercised, and the extent to which the entity is accountable to the government for their exercise”.⁷³¹ Claimants assert that when considered in their totality, these factors define the concept of “governmental powers” and show that the NPS was exercising governmental powers with regard to its impugned conduct.⁷³²

444. Claimants first note that Respondent “does not, and cannot dispute the governmental source and mode of delegation ... of the powers exercised by the NPS that are impugned in the present case".⁷³³

445. Concerning exercise of these powers, Claimants proffer that “the NPS is not free to exercise these powers at its discretion”.⁷³⁴ To this point, Claimants note that “[t]he exercise of these powers is highly regulated”⁷³⁵ and that “the guidelines are highly prescriptive”.⁷³⁶ Specifically, Claimants cite the Voting Guidelines and the Operational Regulations of the NPS, which respectively "prescribe forty-two detailed rules on how votes are to be exercised” and “dictate how each officer or committee of the NPS may exercise voting rights”.⁷³⁷

446. Claimants argue that the powers delegated to the NPS have to be exercised for a public purpose.⁷³⁸ Claimants accordingly point to the purpose of the NPS's powers as “discharg[ing] the government's social welfare obligations under the Korean constitution to each and every one

⁷³⁰ Amended Statement of Claim, ¶¶ 152-153, referring to Korean National Pension Act [CLA-157]. ↩

⁷³¹ Reply, ¶ 185, citing Commentary to the ILC Articles [CLA-166], Art. 5, cmt. 6 (emphasis added by Claimants). ↩

⁷³² Rejoinder on Jurisdiction, ¶ 79. ↩

⁷³³ Reply, ¶ 188, referring to Statement of Defense, ¶ 288. ↩

⁷³⁴ Reply, ¶ 188. ↩

⁷³⁵ Amended Statement of Claim, ¶153. ↩

⁷³⁶ Reply, ¶ 188. ↩

⁷³⁷ Reply, ¶ 188, citing NPS Voting Guidelines [C-75], Annex 1; Enforcement Rules of the National Pension Fund Operational Regulations [CLA-151], Art. 40. See also Transcript of Hearing on the Merits, Day 1, 21 March 2022, p. 83:2-7. ↩

⁷³⁸ Amended Statement of Claim, ¶ 154. ↩

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of its citizens”, and note in particular that “participation is compulsory under the law if the relevant criteria under the National Pension Act is satisfied”.⁷³⁹

447. Moreover, Claimants consider that the extent of accountability to the government is an important factor in assessing whether the impugned powers are governmental.⁷⁴⁰ Concerning the accountability of the NPS, Claimants submit that “[t]he exercise of these powers is subject to several levels of oversight”.⁷⁴¹ According to Claimants, “the NPS's management of the National Pension Fund is subject to the strict oversight of the National Assembly (the Korean legislature), the Board of Audit and Inspection, and the National Pension Fund Evaluation Committee, part of the [MHW]”.⁷⁴² Claimants also contend that the need for oversight is “not some distant, indirect threat”, specifically pointing to the report of the auditor appointed by the MHW as “a source of some of the most damaging revelations in this case”.⁷⁴³

448. Claimants state that the content of the power itself is immaterial, and that the NPS's management of State property cannot be considered to be purely commercial in nature.⁷⁴⁴ Claimants point to both “the market shaping and regulating impact” of the NPS, due to its existence as “the largest institutional investor in the country”, as well as “the governmental imprimatur with which the NPS acts” as evidence of the NPS acting with governmental authority.⁷⁴⁵ Claimants further contend that “it was precisely the influence arising from these powers” that President Park and Minister Moon wanted to target.⁷⁴⁶

449. Furthermore, Claimants contend that domestic law is still relevant to this matter but that Respondent fails to engage with the “core issues of Korean law”.⁷⁴⁷ Particularly, Claimants submit that Respondent's focuses concerning the accounting treatment of the National Pension

⁷³⁹ Reply, ¶ 189, citing Korean National Pension Act [CLA-157], Arts. 6, 8, 9, 88. ↩

⁷⁴⁰ Reply, ¶ 190. ↩

⁷⁴¹ Amended Statement of Claim, ¶ 155. ↩

⁷⁴² Reply, ¶ 190, referring to Korean National Pension Act [CLA-157], Art. 107(4); Enforcement Decree of the National Pension Act, 16 April 2015 [CLA-150], Art. 87. ↩

⁷⁴³ Reply, ¶ 191, referring to NPS Audit of SC&T-Cheil Merger, July 3, 2018 [C-26]. ↩

⁷⁴⁴ Reply, ¶ 192. ↩

⁷⁴⁵ Reply, ¶ 192, referring to NPS Management Guidelines [C-6], Art. 4. ↩

⁷⁴⁶ Reply, ¶ 192. See also Amended Statement of Claim, ¶ 156. ↩

⁷⁴⁷ Rejoinder on Jurisdiction, ¶ 80. ↩

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Fund assets "as 'general' property of the State[] and the classification of claims for damages against the NPS” are “random asides”.⁷⁴⁸

450. Finally, Claimants conclude that “the authorities cited by Korea are again of no assistance to the tribunal, as they concern commercial contractual conduct and bear no resemblance to the present case.⁷⁴⁹

d) Whether the conduct of the NPS or its employees is attributable to
Respondent under ILC Article 8

451. Claimants assert that "in the event that the conduct of the NPS and its officials is not attributable to Korea pursuant to Article 11.1(3)(a) or (b) of the FTA, the conduct remains attributable to Korea under customary international law principles".⁷⁵⁰ Specifically, Claimants point to Article 8 of ILC Articles:

The conduct of a person or group of persons shall be considered an act of a State under international law if the person or group of persons is in fact acting on the instructions of, or under the direction or control of that State in carrying out the conduct.⁷⁵¹

452. Relying on the Commentaries on the ILC Articles, Claimants submit that Article 8 of the ILC Articles is satisfied by determining any one of the three disjunctive terms in the Article: on the instructive of, under the direction of, or under the control of a State.⁷⁵² Claimants argue that these three terms relate to the wrongful conduct as a whole.⁷⁵³ Concerning the term “instructions”, Claimants argue that the analysis must focus on whether the relevant actor actually acted on the instructions at issue to engage in the impugned conduct rather than whether the instructions were "binding".⁷⁵⁴ Similarly, concerning the term “control”, Claimants quote the Commentaries on the ILC Articles in claiming that where “the State was using its ownership interest in or control of a

⁷⁴⁸ Rejoinder on Jurisdiction, ¶ 80. ↩

⁷⁴⁹ Reply, ¶ 194, referring to Bayindir v. Pakistan [RLA-119]; Jan de Nul N.V. and Dredging International N.V. v. Arab Republic of Egypt, ICSID Case No. ARB/04/13, Award, 6 November 2008 [RLA-112). ↩

⁷⁵⁰ Amended Statement of Claim, ¶ 157. ↩

⁷⁵¹ ILC Articles [CLA-24], Art. 8. ↩

⁷⁵² Rejoinder on Jurisdiction, relying on Commentaries on the ILC Articles [CLA-166], Art. 8, cmt. 7. ↩

⁷⁵³ Rejoinder on Jurisdiction, ¶ 85. ↩

⁷⁵⁴ Rejoinder on Jurisdiction, ¶ 86, relying on James Crawford, State Responsibility: The General Part, 28–29 (Cambridge University Press, 2013) [CLA-218], p. 145; referring to Rejoinder, ¶ 303. ↩

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corporation specifically in order to achieve a particular result, the conduct in question has been attributed to the State".⁷⁵⁵

453. Accordingly, Claimants contend that the conduct of the NPS in approving the merger as part of the corruption scheme of the Korean government was at the “instruction, direction or control" of Respondent in accordance with Article 8 of the ILC Articles.⁷⁵⁶ Claimants contend that it need not be demonstrated that there were specific instructions or directions in relation to every action pursuant to the “specific operation".⁷⁵⁷ Rather, Claimants submit that since the “specific operation" for the purposes of Article 8 was the NPS's approval of the [M]erger,⁷⁵⁸ the relevant question is whether “the instructions and/or directions issued, and/or the control exercised by the President, the Minister of Health and Welfare, and their respective subordinates ... were clearly aimed at ‘achieving [that] particular result,' and in fact did achieve that result”.⁷⁵⁹ Claimants conclude that it is indeed clear that Minister Moon abused his control and influence over CIO Hong and the NPS to procure the approval of the merger, thus achieving the objective of the specific operation.⁷⁶⁰ Claimants therefore submit that the MHW had “effective control” over the NPS and its officers when it ensured the approval of the merger.⁷⁶¹

454. Finally, Claimants submit that the decision in Tulip v. Turkey is of no assistance to Respondent's argument since Korea's conduct extends beyond the scenario of state control over shares, the appointment of board members, and public statements.⁷⁶²

3. Tribunal's analysis

455. At the outset, the Tribunal notes that Respondent presents its arguments on State attribution as an objection to the Tribunal's jurisdiction. Respondent argues that “[t]o establish this Tribunal's

⁷⁵⁵ Rejoinder, ¶ 87, citing Commentaries on the ILC Articles [CLA-166], Art. 8, cmt. 6. ↩

⁷⁵⁶ Reply, ¶ 195. ↩

⁷⁵⁷ Reply, ¶ 197. ↩

⁷⁵⁸ Reply, ¶ 198. ↩

⁷⁵⁹ Reply, ¶ 197, citing Commentaries on the ILC Articles [CLA-166], Art. 8, cmt. 6. ↩

⁷⁶⁰ Amended Statement of Claim, ¶ 159, referring to Commentaries on the ILC Articles [CLA-166], Art. 8, cmt. 6. ↩

⁷⁶¹ Rejoinder on Jurisdiction, ¶ 88. ↩

⁷⁶² Rejoinder on Jurisdiction, ¶ 89, referring to Tulip Real Estate and Development Netherlands B.V. v. Republic of Turkey, ICSID Case No. ARB/11/28, Award [RLA-225]. ↩

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jurisdiction, Mason bears the burden of proving that the conduct it complains of is attributable to Korea".⁷⁶³ Claimants do not contest this categorization as a jurisdictional issue.

456. In the Tribunal's view, the issue of State attribution relates both to the Tribunal's jurisdiction and the merits of the dispute.⁷⁶⁴ Insofar as the impugned measures cannot be attributed to the host State, they were not adopted or maintained by a Party within the meaning of Article 11.1.3 of the FTA and cannot form the basis of a claim under Article 11.16 of the FTA. In respect of such measures, the Tribunal lacks jurisdiction.

457. The Tribunal further notes that Respondent's jurisdictional objection is limited to the conduct of the NPS and its employees which, according to Respondent, is not attributable to it. Respondent does not object to the attribution of the impugned conduct of the Blue House, President Park, and her subordinates, as well as the impugned conduct of the MHW, Minister Moon, and his subordinates.⁷⁶⁵ It is undisputed that the Tribunal has jurisdiction over their conduct pursuant to Article 11.1(3)(a) of the FTA.

458. The Tribunal's further analysis of the issue of State attribution is structured as follows: the Tribunal will first discuss the applicable legal standard before addressing the questions of whether the conduct of the NPS or its employees can be attributed to Respondent under Article 11.1.3(a) or (b) of the FTA and ILC Article 8.

a) The applicable standard

459. The Parties disagree on whether Article 11.1.3 of the FTA exhaustively sets out the grounds for State attribution and excludes the application of ILC Article 8 as lex specialis.

460. Article 11.22(1) of the FTA stipulates that the Tribunal shall decide the issues in dispute in accordance with this Treaty and applicable rules of international law. Contrary to what has been suggested by Claimants, this does not mean that the relevant starting point for its analysis on State attribution is the customary international law of State responsibility. Rather, the Tribunal considers that it should first look to the Treaty to establish whether its rules exclusively and

⁷⁶³ Statement of Defense, ¶ 235. ↩

⁷⁶⁴ See also Tulip Real Estate and Development Netherlands B.V. v. Republic of Turkey, ICSID Case No. ARB/11/28, Award, 10 March 2014 [RLA-225], ¶ 276. ↩

⁷⁶⁵ Transcript of Hearing on the Merits, Day 1, 21 March 2022, pp. 206:20-207:4 (Respondent's Opening Submission). ↩

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exhaustively govern the issue of State attribution before turning to other applicable rules of international law.

461. In similar vein, the Al Tamimi tribunal began its analysis on State attribution with the U.S.-Oman FTA holding that “contracting parties to a treaty may, by specific provision (lex specialis), limit the circumstances under which the acts of an entity will be attributed to the State" and in that event "any broader principles of State responsibility under customary international law or as represented in the ILC Articles cannot be directly relevant".⁷⁶⁶

462. Even if one were to choose the ILC Articles as the starting point, ILC Article 55 provides that the ILC Articles do not apply where and to the extent that the conditions for the existence of an internationally wrongful act or the content or implementation of the international responsibility of a State are governed by special rules of international law. In this case, the Tribunal would equally have to first assess whether Article 11.1.3 of the FTA is a special rule of international law which excludes the application of the general principles of State attribution set forth in the ILC Articles.

463. Article 11.1.3 of the FTA deals with State attribution and sets out two grounds for attribution of measures adopted or maintained by (a) central, regional or local governments and authorities and (b) non-governmental bodies in the exercise of powers delegated by central, regional or local governments or authorities. Based on the provision's ordinary meaning, these two instances are the sole grounds for State attribution under the Treaty, thereby excluding the application of the ILC Articles insofar as they provide for broader attribution. The wording of Article 11.1(3) of the FTA is formulated in such way that it can only be understood as an exhaustive and self-contained list of the grounds for State attribution.

464. The Tribunal does not agree with Claimants' suggestion that there needs to be a discernible intention in the Treaty language to exclude the application of other principles of customary international law. Rather, it suffices to state that the issue of State attribution is comprehensively and exhaustively dealt with in Article 11.1(3) of the FTA and that the wording does not contain any indication that the list of grounds was meant to be exemplary and other grounds for State attribution from customary international law should be applicable in parallel. Understanding Article 11.1(3)(a) and (b) of the FTA as mere examples would also be difficult to reconcile with

⁷⁶⁶ Adel A Hamadi Al Tamimi v. Sultanate of Oman, ICSID Case No. ARB/11/22, Award, 3 November 2015 [RLA-156], ¶ 321. ↩

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the general object and purpose of Article 11.1 of the FTA which sets out the scope of application of the investment in a comprehensive and exhaustive manner.

465. This does not mean that the interpretation of Article 11.1(3) of the FTA may not be guided by the ILC Articles to the extent that they correspond to each other. In fact, Article 11.1(3)(a) of the FTA closely mirrors ILC Article 4 and Article 11.1(3)(b) of the FTA closely mirrors ILC Article 5. However, there is no provision in the FTA corresponding to ILC Article 8 which permits the attribution of the conduct of a person or a group of persons if they are acting on the instructions of, or under the direction or control, of the State in carrying out the conduct. In this respect, the Tribunal considers that there is an actual inconsistency between the Treaty and the ILC Articles as the latter provide for broader circumstances under which the acts of a non-governmental entity can be attributed to the State.

466. For these reasons, the Tribunal decides that Article 11.1(3) of the FTA is a special rule which exhaustively deals with the issue State attribution for the purposes of the Treaty and thereby excludes the application of ILC Article 8.

b) Whether the conduct of the NPS or its employees is attributable to
Respondent under Article 11.1.3(a) of the FTA

467. Under Article 11.1(3)(a) of the FTA, the conduct of the NPS and its employees can be attributed to Respondent if the NPS qualifies as a central, regional or local government or authority.

468. While the Parties disagree on the relationship of Article 11.1(3) of the FTA and the ILC Articles, they at least agree insofar as ILC Article 4, and the respective commentary on the ILC Articles, can guide the interpretation of Article 11.1(3)(a) of the FTA which deals with the attribution of measures of State organs.⁷⁶⁷

469. ILC Article 4(2) provides that a State organ “includes any person or entity which has that status in accordance with the internal law of the State". In line with that, the Tribunal will begin its analysis by examining whether the NPS qualifies as a State organ according to the internal law of the Republic of Korea, i.e., whether the entity is a de jure State organ.

⁷⁶⁷ Amended Statement of Claim, ¶ 127; Reply, ¶ 148; Statement of Defense, ¶ 251. ↩

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(1) Whether the NPS qualifies as a de jure State organ

470. To recall, Respondent submits that firstly, the NPS is not a State organ according to Korean domestic law⁷⁶⁸ and secondly, the NPS's separate legal personality precludes it from further being classified as a de jure State organ.⁷⁶⁹

471. As regards the first point, Claimants deny that Korean law conceptualizes or classifies the entities that constitute State organs.⁷⁷⁰ In respect of the second point, Claimants submit that the separate legal personality is only one factor to be taken into account in a wider analysis of the structural and functional legal characteristics of an entity.⁷⁷¹

472. The Tribunal agrees with Respondent that domestic law is critical in determining whether an entity qualifies as a de facto State organ. The Tribunal is further of the view that the first step of such analysis is to determine whether domestic law recognizes the concept of State organs. This view finds support in the ILC Commentaries which provide that “[w]here the law of a State characterizes an entity as an organ, no difficulty will arise”.⁷⁷²

473. Professor Kim, who is a professor of law at Yonsei University in Seoul, Korea specializing in Korean administrative law and who was presented as a legal expert by Respondent, testified on the classification of State organs under Korean law and the legal status of the NPS under Korean administrative law. Claimants did not present their own legal expert on Korean administrative law.

474. Before going into the details of Professor Kim's expert testimony, the Tribunal notes that it does not share Claimants' concerns about the independence of Professor Kim. While Professor Kim, as he disclosed in his expert reports, currently serves on a government committee on water resources management and has served on other government committees and advisory boards in the past, the Tribunal is of the view that this does not affect his independence as a legal expert. Likewise, the Tribunal does not view the circumstance that Professor Kim also appears as legal expert in another investment arbitration against Respondent as affecting his independence as a legal expert in this arbitration.

⁷⁶⁸ Rejoinder, ¶¶ 244 et seq. ↩

⁷⁶⁹ Rejoinder, ¶¶ 248 et seq. ↩

⁷⁷⁰ Rejoinder on Jurisdiction, ¶ 58. ↩

⁷⁷¹ Rejoinder on Jurisdiction, ¶¶ 61-62. ↩

⁷⁷² Commentaries on the ILC Articles (2001) [CLA-166], Art. 4, cmt. 11. ↩

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475. Professor Kim suggested in his expert reports and at the Hearing that Korean law distinguishes between three categories of State organs: (i) State organs that are constitutional institutions; (ii) State organs that are established under the Government Organization Act and other Acts enacted pursuant to Korea's Constitution; and (iii) State organs that are specifically established as “central administrative agencies" by other individual statutes.⁷⁷³ According to Professor Kim, State organs in Korea are “established explicitly either by the Constitution, through specific legislation, or through subordinate regulations” and cannot be established otherwise.⁷⁷⁴

476. The Tribunal is mindful of the fact that there is no express statutory definition of State organs in the Korean Constitution or in other statutes. However, in the Tribunal's view, this does not necessarily mean that Korean law does not (at least implicitly) recognize the concept of State organs. Professor Kim has derived three categories of State organs from a thorough analysis of Korean statues, in particular the Constitution and the Government Organization Act. The Tribunal takes the view that the categorization suggested by Professor Kim may assist it in its analysis of the legal status of the NPS under Korean law.

477. Constitutional institutions are, as Professor Kim explained, directly established under the Korean Constitution and include the National Assembly, the President, the Prime Minister, and the Courts.⁷⁷⁵ It is undisputed that the NPS is not established by or even referenced in the Korean Constitution. The NPS therefore does not fall within the first category of constitutional institutions.

478. In respect of the second category, Professor Kim explained that the Government Organization Act establishes a number of key institutions which are called “central administrative agencies”.⁷⁷⁶ Under the Government Organization Act, there are three categories of central administrative agencies: (i) ministries affiliated to the President (Bu); (ii) ministries affiliated to the Prime Minister (Cheo); and (iii) agencies (Cheong) established under the control of a Bu. This follows from Article 2(2) of the Government Organization Act. According to Professor Kim, all of these types of central administrative agencies are considered State organs under Korean law.⁷⁷⁷ The MHW is an example of a Bu, and the Korea Disease Control and Prevention Agency is an

⁷⁷³ First ER SS Kim [RER-3], ¶ 11; Second ER SS Kim [RER-5], ¶ 12; Transcript of Hearing on the Merits, Day 2, 22 March 2022, pp. 390:15-392:17 [Cross-examination of SS Kim]. ↩

⁷⁷⁴ First ER SS Kim [RER-3], ¶ 16. ↩

⁷⁷⁵ First ER SS Kim [RER-3], ¶ 12. ↩

⁷⁷⁶ First ER SS Kim [RER-3], ¶ 14. ↩

⁷⁷⁷ First ER SS Kim [RER-3], ¶ 18. ↩

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example of a Cheong under the MHW as it is expressly established under Article 38(2) of the Government Organization Act.⁷⁷⁸

479. There are also central administrative agencies which are established by other statutes. They form the third category of State organs in Professor Kim's categorization. This group of central administrative agencies has in common that they need to be expressly established and designated as such in the respective statute (cf. Article 2(2) of the Government Organization Act). One example of such a central administrative agency established by another statute is the Financial Services Commission which is established under the jurisdiction of the Prime Minister pursuant to Articles 3(1) and 3(2) of the Act on the Establishment and Operation of the Korean Financial Services Commission provides that the Financial Services Commission.⁷⁷⁹

480. According to Professor Kim, the NPS is not a central administrative agency and does not fall within the second or third category of State organs. It is not a Cheong as it is not established by the Government Organization Act.⁷⁸⁰ Neither is the NPS a central administrative agency by virtue of another statute. Notably, the National Pension Act does not establish or designate it as such.⁷⁸¹

481. The Tribunal is not convinced that in addition to the three above-mentioned categories of State organs, there exist other categories of administrative entities under Korean law that would also qualify as State organs. Notably, while the NPS is a public institution under the Act on the Management of Public Institutions, the Tribunal is not satisfied that this suffices for it to qualify as a State organ under Korean law. As Professor Kim explained, the designation of an entity as "public institution” merely means that it carries out duties of a public nature. Nevertheless, public institutions include for-profit companies which, for example, operate casinos.⁷⁸²

482. The Tribunal therefore concludes that the NPS does not fall within any of the categories of State organs that can be derived from Korean law.

⁷⁷⁸ First ER SS Kim [RER-3], ¶ 20. ↩

⁷⁷⁹ First ER SS Kim [RER-3], ¶¶ 14-15. ↩

⁷⁸⁰ First ER SS Kim [RER-3], ¶¶ 20, 39. ↩

⁷⁸¹ First ER SS Kim [RER-3], ¶ 40. ↩

⁷⁸² First ER SS Kim [RER-3], ¶ 24. ↩

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483. Even if one were to take the view that Korean law does not recognize the concept of State organs, an analysis of the structural and functional characteristics of the NPS would not lead to a different result.

484. It is undisputed that under Korean law, the NPS has separate legal personality. Neither is it in dispute that a separate legal personality of an entity is not dispositive when determining its status as a potential de facto State organ. However, the Parties disagree on the relevance of this circumstance for the qualification of an entity as de jure State organ.

485. Having reviewed the jurisprudence cited by the Parties that dealt with the question specifically in the context of de jure State organs, the Tribunal considers that most investment tribunals have taken the view that independent legal personality prevents an entity from qualifying as a de jure State organ. The existing jurisprudence has been summarized by the tribunal in Almås v. Poland in the following terms:⁷⁸³

“[T]ribunals have determined that an entity is not a State organ according to the terms of a State's legal order when it has independent personality in that order. For example, in Bayindir v. Pakistan, the tribunal rejected the claim that Pakistan's National Highway Authority was a State organ, because of its separate domestic legal personality. In EDF (Services) Ltd. v. Romania, the tribunal similarly determined than an airport holding company and a State airline, 'both possessing legal personality under Romanian law separate and distinct from that of the State', were not State organs. Similarly, the tribunal in Hamester v. Ghana concluded that the Ghanaian Cocoa Board could not be considered to be a State organ in the sense of Article 4 of the ILC Articles, mainly because it was 'not classified a State organ under Ghanaian law, but [had been] created as a “corporate body,” which [could] be “sued in its corporate name”.

486. On that basis, the Almås v. Poland tribunal decided that an entity that "has separate legal personality and exercises operational autonomy" cannot be considered a de jure State organ even though the entity was supervised by a minister.⁷⁸⁴

487. The Tribunal agrees with this analysis. When an entity has a separate legal personality, especially when it is established according to the provisions of civil law, this indicates that the entity does

⁷⁸³ Kristian Almås and Geir Almås v. The Republic of Poland, UNCITRAL, Award, 27 June 2016 [RLA-161] ¶ 208. ↩

⁷⁸⁴ Kristian Almås and Geir Almås v. The Republic of Poland, UNCITRAL, Award, 27 June 2016 [RLA-161] ¶ 209. ↩

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not form an integral part of the organization of the State itself in such way that it can be considered a State organ.

488. Pursuant to Article 26 of the National Pension Act, the NPS shall be a corporation. It is thus established as a separate legal entity. Furthermore, by virtue of Article 48 of the National Pension Act, the provisions of the Korean Civil Act on incorporated foundations apply to the NPS mutatis mutandis except as provided otherwise in this Act. As Professor Kim explained in his expert reports, the NPS is thus governed by civil law and has the ability to acquire and hold property in its own name and may sue and be sued in its own name.⁷⁸⁵

489. The Tribunal acknowledges that there are several links between the NPS and the Korean government which it will address in detail in the context of the question whether the NPS constitutes a de facto State organ. In respect of de jure State organs, it suffices to say that these links do not affect the legal independence of the NPS under Korean law. If factual dependence of the State were a relevant circumstance for determining a de jure State organ, this would render the distinction between de jure and de facto State organs moot.

490. Finally, the Tribunal considers that no relevant inferences can be drawn from a comparison with the KAMCO, the KDIC and the FSS. While the Tribunal has not been provided with the Dayyani v. Korea award, it understands from public reports that the tribunal relied on statements made by a KAMCO representative before the U.S. courts on sovereign immunity. In the present case, no such representations in respect of the NPS have been made. In any event, the issue of sovereign immunity under U.S. law is different from the present question about the legal status of the NPS under Korean law. The Tribunal is of the view that such representations before the U.S. courts would not be directly relevant to this issue.

491. For these reasons, the Tribunal concludes that the NPS does not qualify as a de jure State organ.

(2) Whether the NPS qualifies as a de facto State organ

492. The Tribunal will now address the question of whether the NPS, regardless of its classification under national law, classifies as a de facto State organ in international law.

⁷⁸⁵ First ER SS Kim [RER-3], ¶ 74; Second ER SS Kim [RER-5], ¶ 40. ↩

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493. The Parties equally rely on the legal standard established by the ICJ in the Bosnian Genocide case:⁷⁸⁶

“[P]ersons, groups of persons or entities may, for purposes of international responsibility, be equated with State organs even if that status does not follow from internal law, provided that in fact the persons, groups or entities act in 'complete dependence' on the State, of which they are ultimately merely the instrument. In such a case, it is appropriate to look beyond legal status alone, in order to grasp the reality of the relationship between the person taking action, and the State to which he is so closely attached as to appear to be nothing more than its agent: any other solution would allow States to escape their international responsibility by choosing to act through persons or entities whose supposed independence would be purely fictitious”.

494. The relevant test is thus whether the entity is completely dependent on the State.⁷⁸⁷

495. In applying this test, the Almås v. Poland tribunal considered factors such as “the performance of core governmental functions, direct day-to-day subordination to central government, or lack of all operational autonomy" as relevant, while noting that the criteria for a de facto State are not met "where an entity engages on its own account in commercial transactions, even if these are important to the national economy”.⁷⁸⁸ In a similar vein, the Union Fenosa v. Egypt tribunal found that the designation as “public authority", the implication of public concerns or some governmental oversight by the State are not dispositive of a de facto State organ.⁷⁸⁹

496. In the present case, the Tribunal (by a majority) is not satisfied that the NPS meets the criteria of a de facto State organ.

497. While the NPS is established by and its powers derive from government legislation (the National Pension Act), this does not show that it is completely dependent on the Korean State. Rather, the National Pension Act affords the NPS a considerable level of autonomy from the government: as

⁷⁸⁶ Case Concerning Application of the Convention on the Prevention and Punishment of the Crime of Genocide (Bosnia and Herzegovina v. Serbia and Montenegro), I.C.J. Judgment, 26 February 2007 [RLA-105] ¶¶ 392-393; see Reply, ¶ 175; Rejoinder, ¶ 258. ↩

⁷⁸⁷ One of the arbitrators is not convinced that complete dependency is required but takes the view that one needs to look at the individual act. ↩

⁷⁸⁸ Kristian Almås and Geir Almås v. The Republic of Poland, UNCITRAL, Award, 27 June 2016 [RLA-161] ¶¶ 207, 210. ↩

⁷⁸⁹ Union Fenosa Gas, S.A. v. Arab Republic of Egypt, ICSID Case No. ARB/14/4, Award of the Tribunal, 31 August 2018 [CLA-145] ¶ 9.99. ↩

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previously stated, the NPS is established as a corporation according to civil law and can acquire property, sign contracts and be party to litigation in its own name.

498. This autonomy is also reflected in the decision-making processes of the NPS. While there is some level of supervision and oversight by the Korean State, notably by the MHW, the Tribunal is not convinced that this is of such a scale that day-to-day management decisions within the NPS are imposed by the government and can be said to be completely dependent on the Korean State apparatus.

499. For example, the NPS Board of Directors and the CEO are appointed by or upon the recommendation of the Minister of Health and Welfare, and the NPS's operational plan must be approved by the Fund Operation Committee and the President. Furthermore, the members of the Special Committee are appointed by the Fund Operation Committee. Other examples include the power of the Minister of Health and Welfare to request reports and to conduct inspections or the oversight by the National Assembly and the Board of Audit and Inspection.

500. However, these supervisory powers are limited in scope and, crucially, not uncommon for State-owned corporations or entities. As Professor Kim has explained, the MHW is not authorized to provide instructions to the NPS regarding the day-to-day business and management of the fund.⁷⁹⁰ In practice, the supervisory powers are exercised with restraint.⁷⁹¹ The NPS has a Board of Directors as an independent decision-making body, which comprises fourteen civilian officers and only one public official.⁷⁹² As already mentioned in the Statement of Facts, the National Pension Fund itself is managed by the NPSIM, an internal division of the NPS which is headed by the Chief Investment Officer. This shows that the NPS has its own decision-making bodies which are in charge of the day-to-day decisions on the management of the fund and similar to those of a private pension fund. Consequently, the NPS is not completely dependent on the Korean State for its decision-making.

501. Nor does the fact that the NPS fulfils a public function suffice to make it a de facto State organ. The NPS serves to provide pension benefits for old-age, disability or death.⁷⁹³ While some of its

⁷⁹⁰ First ER SS Kim [RER-3], ¶ 51; Second ER SS Kim [RER-5], ¶ 37. ↩

⁷⁹¹ Transcript of Hearing on the Merits, Day 2, 22 March 2022, p. 368:2-370:2 [Cross-examination of SS Kim]. ↩