South Korea has secured a final win in an investor-state dispute settlement (ISDS) case brought by a Chinese investor who lost pledged shares after failing to repay a loan from a Korean financial institution. The arbitral tribunal's original finding — that an investment made in violation of domestic law cannot be protected under an investment treaty — was left intact.
The annulment committee of the International Centre for Settlement of Investment Disputes (ICSID) rejected in full an application to annul the arbitral award filed by a Chinese investor surnamed Min, the Ministry of Justice said on the 13th, citing a decision issued the previous day. The ruling finalizes the May 2024 award that dismissed all of Min's claims. The committee ordered Min to pay about 1.51283 billion won in legal costs the government incurred during the annulment proceedings, plus interest. Min will also bear about 573 million won in arbitration costs.
Min set up Pi Korea in South Korea in 2007 to acquire the Huapu Building in Beijing, raising 380 billion won through a project financing loan arranged and guaranteed by a Korean bank. After Min failed to repay the loan, the bank enforced its security interest and sold the shares in Pi Korea.
Min lost a civil suit challenging the enforcement of the security interest, with the Supreme Court ruling against him in 2017, and was also convicted in a criminal trial after it was confirmed that he had given money and other benefits to bank executives and employees during the loan process. He then filed the ISDS claim in 2020, arguing that the bank's enforcement of the security interest and the domestic civil and criminal proceedings violated the Korea-China investment treaty. His damages claim started at about 2 trillion won and was ultimately set at about 264.1 billion won.
The original tribunal dismissed all of Min's claims, finding that the establishment of Pi Korea and the acquisition of its shares formed part of an unlawful scheme to secure the project financing loan through bribery. Under that reasoning, an investment that is unlawful under domestic law falls outside the protection of the Korea-China investment treaty. The tribunal also ordered Min to pay about 4.9126 billion won in legal costs incurred by the government, plus interest.
Min applied in September 2024 to annul the award, arguing that the tribunal had misinterpreted the treaty and domestic law, had not guaranteed him a sufficient opportunity to present his case, and had left gaps and contradictions in its reasoning.
The annulment committee found that the tribunal's interpretation of the treaty was reasonable, that Min had been given a sufficient opportunity to argue his case, and that the reasoning contained no omissions or contradictions. It therefore rejected all of the grounds for annulment that Min had raised.
"This reaffirms the finding that an investment that is unlawful under domestic law is not protected in ISDS," said Kang Joon-ha, director general of the Ministry of Justice's international legal affairs bureau. "It will serve as an important precedent in similar ISDS cases going forward."
