법무법인(유한) 율촌 | Yulchon LLC

On 16 July 2020, Mr. Min Fengzhen (“Mr. Min”), a Chinese national of Korean ethnicity, initiated an ICSID treaty arbitration against the Korean government pursuant to Article 9 of the 2007 Agreement between the Government of the People’s Republic of China and the Government of the Republic of Korea on the Promotion and Protection of Investments (the “BIT”).

Mr. Min argued that the Korean courts’ alleged improper handling of the civil proceedings and criminal proceedings against Mr. Min and Woori bank’s alleged wrongful enforcement of the security over the shares in Pi Korea, the company of which Mr. Min was a sole shareholder, constitute breach of the BIT. Mr. Min originally sought around USD 1.4 billion in damages but reduced his claim to around USD 191.5 million by the time of the award.

On 31 May 2024, the Tribunal issued a Final Award entirely in favor of the Republic of Korea. The Tribunal decided that to fulfill the requirements of Article 1(1) of the BIT, the asset must be “used” in accordance with the applicable laws of the host state at the time of investment. The Tribunal further rendered that in the case of an asset created at the time of investment, that must mean that the company and the shares are required to be brought into existence for use in accordance with such laws. The Tribunal determined that the actions of the Korean judiciary and investigative authorities were conducted lawfully and that the shares of Pi Korea were utilized in a criminal scheme contrary to Korean law and based on the evidence presented in this arbitration, “the purpose of the use of the investment” did not comply with the laws and regulations of Korea. These investments did not fulfill the requirements under Article 1 of the BIT to constitute investments protected by the BIT since Pi Korea was established by Mr. Min for the unlawful purpose of obtaining loans from Woori Bank through fraudulent means. Consequently, it was determined that the Tribunal lacked jurisdiction, and all of Mr. Min’s claims in this arbitration were dismissed, which consequently led to the dismissal of all other issues of jurisdiction as well as the merits.

While Republic of Korea has had a number of investor-State arbitrations brought against it for the past few years, this dispute stands out as one of the largest and most politically sensitive matter it had encountered. Notably, this case marks the first time the Korean government has fully prevailed following a complete merits hearing. It is significant in establishing the principle that investments deemed illegal under a host state’s laws and regulations are not protected under the ISDS regime.