CONTENTS
- 1. Korean Government Wins Schindler ISDS in Full
- 2. Structure of the Dispute: The Internationalization of a Corporate Control Dispute
- - Origin of the Dispute: A Governance Conflict
- - Conflict over Whether the Regulatory Authorities Should Have Intervened
- - The Structure of Expansion into an International Dispute
- - The Korean Government's Defense Theory
- 3. Analysis of the Core Legal Principles: Reaffirmation of the Standards for ISDS Determinations
- - The Distinction Between Regulatory Failure and State Responsibility
- - Standards for Determining Fair and Equitable Treatment (FET) and Discrimination
- - The Scope of Interpretation of Full Protection and Security (FPS)
- 4. The Significance of the Award: Redefining the Standards for State Regulatory Authority and Investor Protection
- - Implications from the Perspective of Companies and Investors
- 5. The Potential for Investment Disputes to Expand and the Legal Risks for Companies
- - Principal Legal Risks That May Arise
- - Assistance from Daeryun Law Firm LLP
1. Korean Government Wins Schindler ISDS in Full
In March 2026, the Permanent Court of Arbitration (PCA) ruled in favor of the Korean government in the international investment dispute brought by Schindler, dismissing all of the claims.
In addition, Schindler was ordered to bear the litigation costs, which amounted to approximately 9.6 billion won.
This case is regarded as one that reaffirmed the international legal standards governing a state's regulatory authority through a protracted dispute spanning approximately eight years.
2. Structure of the Dispute: The Internationalization of a Corporate Control Dispute
Although this case takes the form of an international investment dispute (ISDS) on its surface, in substance it is a case in which a dispute originating from a domestic corporate control conflict between companies expanded into an issue of international law.
It is particularly notable in that a foreign investor recharacterized losses arising in the course of decision-making related to the control of a domestic company as a matter of the state's regulatory responsibility.
Origin of the Dispute: A Governance Conflict
As a major shareholder of Hyundai Elevator, Schindler raised the objection that the company's capital transactions were carried out for the purpose of defending corporate control rather than out of managerial necessity.
Specifically, the following transactions were at issue.
• The structure of derivative and call-option transactions
• Fund-raising for the purpose of maintaining control over affiliates
Schindler argued that, as a result of these transactions, the value of existing shareholders' stakes was diluted and its economic interests were impaired.
Conflict over Whether the Regulatory Authorities Should Have Intervened
• An environment favorable to a particular company (the Hyundai Group) was created
• This brought about an outcome unfavorable to it as a foreign investor
Reasoning along the following lines, Schindler continually raised the matter with supervisory authorities such as the Fair Trade Commission, the Financial Services Commission, and the Financial Supervisory Service, but it took the view that no substantive sanction or intervention had been carried out.
The Structure of Expansion into an International Dispute
On the basis of its dissatisfaction with the supervisory authorities' response and its investment losses, Schindler applied the Korea-European Free Trade Association (EFTA) investment agreement and brought ISDS proceedings against the Republic of Korea.
In other words, this is a structure in which an internal corporate control dispute, combined with claims of investor losses, was converted into an issue of state responsibility and ultimately expanded into international arbitration.
The Korean Government's Defense Theory
In response, the Korean government recharacterized the essence of the case as a corporate control dispute between companies.
On this premise, the government presented the following defense theory.
• The supervisory authorities made their determinations within the scope of reasonable discretion
• There was no fact of shielding or discriminating against any particular company
• The investor's losses were attributable to market and internal corporate factors
Ultimately, rather than contesting the question of the illegality of the state's conduct itself, the government adopted a strategy of emphasizing that the nature of the dispute was not an investment dispute protected under international law, and this reasoning was accepted as such in the final award.
3. Analysis of the Core Legal Principles: Reaffirmation of the Standards for ISDS Determinations
In this case, the arbitral tribunal determined that the Korean government's regulatory measures were neither arbitrary nor discriminatory and did not violate the obligations under the investment agreement.
Specifically, it found that the relevant authorities, including the Fair Trade Commission, the Financial Services Commission, and the Financial Supervisory Service, had carried out sufficient investigation and review of the transactions at issue, and that this process had likewise been conducted within the scope of their lawful authority.
It also did not accept the exercise of political influence or the discrimination against a foreign investor that Schindler alleged, finding that objective evidence was lacking.
The Distinction Between Regulatory Failure and State Responsibility
The most important legal principle in this award is that the mere circumstance that the outcome of a state's regulation operated to the disadvantage of an investor does not give rise to a violation of international law.
In other words, the standard for determination is not the outcome of the regulation, but whether the conduct in question was unlawful under international law.
Standards for Determining Fair and Equitable Treatment (FET) and Discrimination
In determining whether there had been a violation of fair and equitable treatment (FET), the arbitral tribunal made clear that mere grievances or outcome-focused assertions are insufficient and that clear evidence is required.
It also reaffirmed the standard that discrimination against a foreign investor is likewise not recognized on the basis of abstract assertions alone, and that specific and objective proof is required.
The Scope of Interpretation of Full Protection and Security (FPS)
The arbitral tribunal interpreted the obligation of ‘full protection and security (FPS)’ under the investment agreement as a concept in principle limited to physical protection.
Accordingly, it took the view that the state is not recognized as bearing an obligation to actively intervene and protect even ordinary corporate management or the course of legal disputes.
It further determined that even if legal protection were regarded as included, where a domestic judicial system exists and relief can be obtained through it, the state's obligation of protection has already been satisfied.
4. The Significance of the Award: Redefining the Standards for State Regulatory Authority and Investor Protection
This award carries significant meaning in that it clarified the standards applicable in international investment disputes.
First, it confirmed that broad discretion may be recognized with respect to a state's regulatory conduct.
This means that, in similar disputes going forward, a state may receive a certain level of protection in the course of carrying out policy determinations.
It also confirmed that the standards for investor protection are being applied more strictly.
The trend that investment losses or a corporate control dispute alone make it difficult to escalate a matter into an international dispute, and that clear illegality and evidence are required, is being reinforced.
Implications from the Perspective of Companies and Investors
This award offers the following implications for companies and investors.
• Proof of clear discrimination and illegality is required
• Securing records and procedures in the course of responding to regulation is important
• Whether domestic legal remedies have been pursued operates as an important factor in the determination
In other words, it was confirmed once again that international investment disputes are judged not on the basis of outcomes, but on the basis of process and evidence.
5. The Potential for Investment Disputes to Expand and the Legal Risks for Companies
The structure in which an investor took issue with the response of the regulatory authorities and carried the matter into an international investment dispute suggests that domestic corporate activity, too, may at any time become the subject of an international legal determination.
In other words, an environment is taking shape in which a company's business judgment and its handling of regulation do not remain internal matters but may expand into an international dispute.
Principal Legal Risks That May Arise
Within such a structure, companies and investors may face the following legal risks.
• The risk that a corporate control dispute may be converted into an investor dispute
• The possibility of expansion into ISDS where interests conflict with a foreign investor
• Disputes over liability for investment losses depending on the outcome of the regulatory authorities' response
• The occurrence of complex disputes in which domestic litigation and international arbitration proceed in parallel
Even where a matter arises in the course of internal corporate decision-making, where a foreign investor is involved, an international investment agreement may apply, and the nature of the dispute may expand into an entirely different dimension.
Assistance from Daeryun Law Firm LLP
At Daeryun Law Firm LLP, customs specialists holding the licensed customs broker qualification, international trade attorneys, and finance attorneys collaborate to review legal risks in advance at the investment-structuring stage and to systematically analyze the elements of dispute that may arise in the course of responding to regulation.
It also examines, on a proactive basis, the legal issues that may become problematic in the course of a company's business decision-making, and for transaction structures involving foreign investors, it establishes response strategies that take into account even the possibility that an international investment agreement may apply.
Where a dispute has materialized, it designs the direction of the response by linking domestic litigation and international arbitration, and it builds a strategic defense theory grounded in the interpretation of the investment agreement and the evidentiary structure.
Through this, it presents comprehensive solutions so that companies can prevent escalation into an unexpected international investment dispute and respond effectively to disputes that have already arisen.
