ED Korea ill-prepared for ISDS
Korea should learn lessons from Daewoo Electronics case
A British court has ruled against the South Korean government in its legal dispute with Iran's Dayyani family over the latter's failed acquisition of Daewoo Electronics in 2010.
The High Court of Justice in England has rejected the government's request to nullify the International Center for Settlement of Investment Disputes (ICSID) ruling in June 2018 that ordered it to pay 73 billion won ($63 million) in compensation to Entekhab, an Iranian electronics company owned by the family, according to the Financial Services Commission, Saturday. As a result, the government must consult with creditors of Daewoo Electronics on how to compensate the Iranian firm.
It is a bad precedent for South Korea. The ruling is especially disappointing because the ICSID is set to rule on much bigger investor-state dispute settlement (ISDS) cases involving the Korean government. They are $4.7 billion and $770 million suits filed by the Lone Star Funds and Elliott Management Corp. of the United States, respectively. Korea needs to learn lessons from the Daewoo Electronics case to better prepare for these rulings.
The biggest problems are lack of manpower handling ISDS cases inside the government and misleading strategies resulting from it. In the latest case, the state-run Korea Asset Management Corp. (KAMCO) picked Entekhab as the preferred bidder for a controlling stake in Daewoo Electronics in April 2010. After the signing, the Iranian firm paid 10 percent of the price, or 57.8 billion won, via its Singapore-based affiliate D&A. However, creditors led by KAMCO nullified the deal months later, citing Entekhab's failure to submit adequate funding plans. The Iranian firm first filed a compensation suit in Korea, but lost. It then brought the case to the ICSID. Finally in 2018, the ICSID ruled in favor of Entekhab, ordering the Korean government to pay 73 billion won, including interest. The Korean government then filed a suit with the British court to nullify this ruling.
Throughout the legal dispute, the Korean government claimed it is not among creditors of Daewoo Electronics, so not responsible for the deal breakdown, citing an investment treaty between South Korea and Iran. But both the ICSID and the British court regarded this as an excuse to avoid responsibility.